The Consul General at Peiping (Clubb) to the Secretary of State
[Received May 17.]
The Consul General has the honor to transmit ‘herewith for the information of the Department a copy of a proclamation17 regarding the exchange of Nationalist currency (GY) for Communist currency in the Peiping area. This proclamation appeared in the February 2, 1949, issue of the Jen Min Jih Pao (People’s Daily News, formerly the Hua Pei Jih Pao), which is now the official Communist newspaper in Peiping.
The regulations contained in the proclamation briefly provide that the circulation of Gold Yuan (GY) should be permitted for twenty days from the date of publication of the proclamation; however, residents of the city could refuse to accept GY after the publication of the proclamation. A special rate of exchange of three GY to one Communist dollar is given to students, factory workers, school staff members, and to the poor, up to the sum of $500. GY. Only three types of Communist currency are to be allowed to circulate in the city. The People’s Bank Note (PB)18 is to be the main currency, and the Chinan (South Hopei) and Northeast Bank notes subsidiary currencies. Exchange stations are to be opened for the purpose of facilitating the exchange of GY for Communist currency. Licenses to export large quantities of GY from areas controlled by the Communist armies must be obtained from the Municipal Government or the People’s Bank (formerly the Central Bank of China). This proclamation also contains an additional section outlining the procedure under which persons entitled to the special exchange rate may obtain that rate at the exchange stations.[Page 739]
The exchange of currency under the terms of the proclamation began on February 4, on which day only those entitled to the special rate could change their money. On February 6 the exchange for the general public began, with 228 exchange stations (banks, money shops, and commodity shops) participating. The exchange proceeded smoothly, with the result that GY has continued to be accepted for the time being without question or hesitation.
The rate of exchange now prevailing is ten GY to one PB. It is interesting to note that at the beginning of January the rate of exchange in “liberated areas” in North China was three GY to one PB, and that before the end of the month the devaluation of GY in successive steps had brought that currency down to the present rate of exchange. During the period of exchange in Tientsin GY was devaluated officially twice within five days, with the result that a financial panic ensued. GY was almost universally not accepted, the banks were overwhelmed with people trying to change their GY holdings, a black market in PB appeared, and prices rose vertically at the same time that GY depreciated to a point far below the officially proclaimed level. The Communist authorities have apparently taken this lesson sufficiently to heart that no further devaluation of GY has been announced, although a memorandum from the People’s Bank, Peiping branch, to all the exchange stations, warns them to be prompt in reporting transactions in order to avoid losses because of a sudden change in rate.
A rate of exchange for United States currency against PB has not yet been announced in Peiping. The present official rate in Tientsin is 80 PB to $1.00 US. This official rate was announced in the first days of Communist control of Tientsin. In both Peiping and Tientsin the black market rate for the dollar is approximately double the official rate. In this connection it should be noted that the most common People’s Bank note is the one hundred dollar denomination, which is itself a sign of inflation. There are indications that the Communist authorities recognise that the official rate for the U.S. dollar is far too low, and intend to refrain for the time being from announcing a new rate in the hope that a changed rate may be announced at such a time and under such conditions that a black market may be avoided.
Banks and shops assisting in the exchange operation are to be given a commission of four-tenths of one percent on each dollar GY exchange. At least one commercial bank is operating as an exchange station under the direct supervision of a Communist official, the officers of the bank having nothing to do with the transactions. The bank is contributing its quarters and clerical staff, and expects to receive the commission when the exchange period has ended. Foreign banks have [Page 740]not been appointed as exchange shops, and in fact have not been approached by the new authorities regarding any matter whatsoever.