The Consul General at Shanghai (Cabot) to the Secretary of State
[Received March 24—5:26 a. m.]
988. Shanghai financial situation continues confused and parlous. Extreme currency tightness main feature past week since mid-month col35 index and payday. Commercial banks, restricted to cash withdrawals from Central Bank only 10 percent previous days clearance, restored issuance cashiers’ checks which discounted 10–15 percent in circulation. Much talk higher denomination notes which known to be [Page 748]printed, but appears probable to save freight these shipped upcountry where also comparable currency famine.
However, most new notes Shanghai now GY 500 (rather than 100 recently prevalent), which currently worth less than US 5 cents. Press article estimates note issue now excess GY 200 billion, thus 1,000 times greater than original issue 200 million 7 months ago.
Whether or not present inadequate issuance notes deliberate Government policy, along with gold and silver sales, to hold down prices opposite has been result. BM quotations and commodity prices have been advancing average 10 percent per day and now stand 2–4000 times August levels. From 16th to 23rd March US dollars up from GY 6,800 to 11,600, certificates from 6,500 to 11,600 gold from 350,000 per oz. to 570,000 rice from 38,000 per picul 172 lbs. to 70,000.
Silver dollar program proceeding haltingly obviously beset basic difficulties. Announced mint since renewal operations March 1 has turned over to Central Bank one million new dollars, but the 4 or 5 hundred thousand actually paid out to public have been old diverse coinages. These are passing into or through hands several thousand hawkers who now adding congestion Shanghai streets.
After outlaw 13 years, legitimate gold bar exchange resumed this week, following closely reopening Shanghai stock exchange. Spot delivery only, with permissive movement quotations 10 percent daily. Traders initially cautious, not knowing how Central Bank will utilize as instrument Government policy.
S. Y. Liu designated Minister Finance in new Cabinet replacing Hsu Kan who bowed to substantial failure all recently attempted financial improvizations. No indication yet what changes in mill and thus all commerce under same cloud political uncertainty which so persistently recurrent during past year. Contributory locally is shakeup and turnover in top staff municipal government officials responsible col index particularly coming under attack and pressure now. Resistance to collection taxes in kind also reported increasing to point rendering ineffective.
Meanwhile continued interest all concerned in barter trade with North China36 which still not completely formalized. Snags, however, have brought to halt progress which was being made recent weeks in matter inter-remittance funds. Number banks were handling transmission small sums equivalent US dollars 10–20, but this stopped by Communist initiative presumably due difficulties achieving satisfactory exchange rate between two currencies which both inflating but at different tempos.[Page 749]
Inform Treasury, Commerce.
Sent Department 988, repeated Nanking 583, Canton 200.