893.50 Recovery/9–2248: Telegram
The Acting Secretary of State to the Ambassador in China (Stuart)
1433. For Emb and Lapham from State and ECA. Dept and ECA have given careful consideration economic financial developments China and to subjects referred Embtel 1748, Sept 22 repeated Shanghai 838.
Feasibility redisposition China Aid Act funds considered Dept when new currency measures were announced but rejected for reasons discussed Dept’s memo August 3090 this subject airpouched Emb Sept 27. ECA concurs this view and comments below. Redisposition considered involve 3 possible steps (a) acceleration whole ECA program provide maximum flow imports next 3 months; (b) abandonment capital reconstruction and replacement phase program in favor increased imports not only of food, as Emb suggests, but also fuel, raw materials, etc., and (c) diversion 125 million Section 404 (b) China Aid Act from military procurement to imports of such goods.
Steps (a) and (b) would require flow of aid goods considerably above rate contemplated by Congress and should exhaust ECA appropriation by end 1948. Administrator has taken position no request should be made Congress in January for deficiency appropriation ECA programs. Steps (b) and (c) inconsistent with legislative history China Aid Act and appropriations thereunder. Moreover, commitments already made and in process against $125 mil appropriation represent major portion this fund.
Dept’s policy with respect to silver loan for currency stabilization already explained House and Senate foreign affairs committees in unreleased statement of last February,91 copies of which air pouched Emb Depins 165 dated Aug 13, 1948.92 Reference statement does not deal explicitly with use of silver for purposes envisaged by Emb. However, general considerations apply, and in absence Congressional authority funds would not be available to acquire silver for China. Use of ECA funds to acquire silver coins would not be consistent with Congressional intent. Treasury stabilization fund use considered inadvisable. In any case, Dept seriously doubts feasibility provide silver for Govt expenditures as temporary measure. Treasury concurs.
Finally it does not appear possible benefits such steps as could be taken would warrant drastic action required.
Dept understands Emb has been preparing with assistance Casaday and Parker detailed analysis of new financial measures and prospects [Page 420] success new currency. Dept desires have such analysis in hand as soon as possible. [State and ECA.]