The Consul General at Shanghai (Cabot) to the Secretary of State
[Received March 25—1:42 a. m.]
990. For Treasury, State and ECA from Parker. In conversation at Embassy March 24, new Finance Minister S. Y. Liu advised total currency circulation GY 120 billion which equivalent US dollars 10 million at Shanghai open market rate 11.7 thousand on March 23. Since February 24 Central Bank has dumped US dollars 6 million in gold, silver and US currency, in addition to commodities of undetermined value. In this period payment of silver coins to Chinese Army valued slightly less than US dollars 3 million. Failure of dumping to arrest price, rate increases attributed to failure dump sufficient foreign exchange. Hsu Kan opposed operation and Liu enabled use less than dollars 15 million monthly he felt required to achieve any effect.
Liu appointed Finance Minister on resignation Hsu prompted by President Li’s opposition Hsu’s support Gimo’s desire deprive Government and Central Bank control over gold. President vainly attempted persuade Chang Kia-ngau and K. P. Chen37 accept Finance Minister post prior asking Liu. Concurrently Liu continues Governor Central Bank but operations in charge H. J. Shen who also Director Central Trust.
Finance Minister’s policy will be continue[d] use gold sales [to] finance budget deficit by absorbing currency issue. Our announcement Nanking greatly disturbing and probable reconsideration whole financial policy now being undertaken.
New subject: Shanghai wholesale index 350,082 on March 23 an increase by 117 percent over March 9 level. Index influenced particularly by sharp increase rice price from 29 to 63 thousand between March 9 and 23. Open market dollar rate closed 12.1 thousand buying March 24 (double March 9 rate). Depreciation at constant rate over period. Central Bank maintaining severe cash shortage by restricting release currency against deposits.
Sent Department; repeated Canton 204, pouched Nanking 585. [Parker.]
- Chairman of the board of directors of the Shanghai Commercial and Savings Bank.↩