Foreign Relations of the United States, 1948, The Far East: China, Volume VIII

893.5151/11–1648: Telegram

The Consul General at Shanghai (Cabot) to the Secretary of State

Shanghai, November 16, 1948—1 p.m.
[Received November 16—5:40 a.m.]

2421. State and Treasury from Cassady. Reourtel 2379 [2395,] November 12, repeated Nanking 1814.

1. Saturday, November 13 Army, Navy and USEFC wanted funds urgently. S. Y. Liu still then at home ill and all other responsible Central Bank officials in Nanking. Finally reached S. Y. Liu by telephone at his home who confirmed that in Central Bank’s view notification given Albert Shao by Casaday on November 11 as per section 2 reftel constituted an automatic abrogation of our verbal agreement for a realistic special conversion factor. However, in view urgency our needs Liu agreed to allow Army and Navy to purchase that day from Central Bank at 35 to 1 (which was last previous rate that had been negotiated for Shanghai under arrangement) and allow USEFC equivalent of US $25,000 at same figure. These transactions satisfactorily consummated on Saturday and presumably will constitute last transactions under our former special arrangement except for USEFC concerning which S. Y. Liu agreed to talk to Casaday further this week.

2. Meanwhile Central Bank officials claim to have not yet received any authorization or instructions from Nanking implementing new regulation including new official rate of 20 to 1 announced in morning newspapers November 12 (see section 3 reftel). Appointed banks in Shanghai say they have customers willing to do business at new rate but Central Bank having received no authorization from Nanking has issued none to appointed banks.

Last night November 15 S. Y. Liu who no longer sick and who just returned from quick trip to Nanking told Casaday 20 to 1 “might be” the new official rate but that new linking systems somewhat similar to that tried in June and July (certificate system) will be instituted in very few days and that implementation of new official rate announced November 12 will be held up until new regulations announced.¹¹

3. Severe shortage local currency here and State Department posts and Army, Navy clamoring for GY despite Embassy authorization to pay all employees in US currency. With our special arrangement no longer operative and still impossible but [buy] from appointed banks at other than 4 to 1 there is no alternative to negotiating drafts on black market.

Deal arranged for ConGen Shanghai yesterday at 28 to 1 for US $15,000 draft but proceeds can be furnished only over period of 4 or 5 days. Prospective purchasers of drafts not extremely difficult to locate and arrangements being made to simplify this on strictly confidential basis but under present conditions purchasers having extreme difficulty in furnishing actual GY notes.

Sent Department; repeated Nanking 1833 for Merchant. [Casaday.]

Cabot

11. In telegram No. 2523, November 24, 5 p.m., the Consul General at Shanghai reported that a Central Bank circular of November 22 cited 20 to 1 as the official rate (893.5151/11–2448).