893.5151/2–1549: Telegram

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

550. For Treasury from Parker.12 At meeting this morning with Griffin,13 ECA and myself, Finance Minister Hsu accompanied by S. Y. Liu, governor Central Bank, and K. C. Wu, Mayor Shanghai, discussed proposal new sweeping monetary and financial reforms to be supported by introduction silver currency. Proposal requires 30 million silver dollars per month to be introduced circulation by Central Government as pay troops and government workers. Suggested GY (gold yuan) note circulation be continued to fluctuating rate to silver dollars. Chinese Government now has on hand sufficient coin and bars silver for their estimate of first month’s requirements, but want assurance of availability of supply sufficient for 4 months before plan is undertaken. Meeting today was for purpose of requesting exploration of possibility of loan from the US Government of 100 million ounces silver or sufficient dollars to purchase silver on open market. Group apparently undecided whether request loan from stabilization fund, Export-Import Bank or RFC.14

Chinese Government representatives Washington not informed this proposal but mission will proceed if any assurance given that US would entertain negotiations for silver loan.

Additional economic reforms as now being tentatively considered include:

End of all restrictions on exports from China except requirement that exporters sell 25 per cent foreign exchange proceed to Central Bank at “realistic rate”.15
End import restrictions except “luxuries”, with full freedom to use private foreign exchange resources.
Elimination restrictions on local dealing in gold and foreign exchange.
Government to sell gold for premium price with payment US dollars 35 per ounce with balance in GY at black market rate.

In addition government proposes reduction in number of civil workers and military expenditures (by reducing paper armies to following approximate actual effectives) as means reducing budget outlay. [Page 738] Considering collection taxes be in silver dollars or foreign exchange.

Chinese Government reluctant use any gold resources for procurement silver on basis dissipation gold reserves for GY would seriously impair confidence people. (From other sources it has been reliably learned that gold resources Chinese Government total between 5.8 and 6 million ounces.)

Further details and analysis will follow.16

Request Treasury comments soonest. [Parker.]

  1. Paul C. Parker, Acting Treasury Representative in China.
  2. Robert A. Griffin, Deputy Chief of the ECA China Mission.
  3. Reconstruction Finance Corporation.
  4. In despatch No. 148, March 24, the Consul General at Shanghai reported that $163,559,760.62 worth of foreign exchange had accrued to the Central Bank of China during 1948 as a result of exports of merchandise (893.5151/3–2449).
  5. Telegram No. 631, February 23, 2 p. m., p. 740.