The Consul General at Shanghai (Cabot) to the Secretary of State
[Received March 27—11:31 p. m.]
1005. For Treasury from Parker. Within past 3 weeks Chinese Government approached FRB38 NY re purchase gold with foreign exchange. FRB advised Chinese Government matter referred Treasury. Request involves purchase million ounces at $35 for internal sales. Have been approached here by Finance Minister and Central Bank representatives for statement progress Treasury consideration. My position prejudiced by inability make reply. Please advise status soonest.
Under present situation consider judicious policy gold sales combined commodity import program becoming only means effectively slowing inflation to maintain intact gold yuan as basis South China economy. Although Chinese Government has at least 4 million ounces, quantity available Shanghai probably less than half million. Remainder, I am satisfied, is under Generalissimo’s control in southern ports and not accessible Central Bank or Li Tsung-jen. Press associations have learned of this and will break story in United States. Since available stocks inadequate to support gold sales program to which Chinese Government committed, recommend Treasury approve sale as measure support Li’s position during peace talks. However, recommend release of gold be in limited amounts calculated support present Government fiscal operations on week to week basis. Further supports should be made conditional on unification separate political factions South China and reduction military expenditures to approach realm of actuality. If approved, notification to Chinese Government could be given at time denial loan request to ease blow. Have just talked with Ambassador who approves for political considerations.
Shanghai gold market now legally reestablished, closed March 26 at gold yuan 6,350,000 per ounce. Rate against US dollars (unofficial) 47.50 to 48.50. Gold yuan rate against dollars 13,500, certificates closed buyers 11,950.
Finance Minister approached Ambassador with request I be available to him for informal but direct consultation on financial policies Chinese Government. Ambassador agreed.
Sent Department; repeated Nanking 594, Canton 210. [Parker.]
- Federal Reserve Bank.↩