840.51FV93/6–1549
Memorandum by Mr. Livingston T. Merchant 5 to the Chief of the Division of Chinese Affairs (Sprouse)6
As you know, Mr. Butterworth has been anxious to explore the feasibility of and methods by which official Chinese Government balances in the United States might, at some future point, be frozen or otherwise immobilized on short notice. In a meeting Monday with Paul Parker and Arthur Stewart7 of Treasury, I took occasion to explore this informally.
The fact of the matter seems to be that Chinese Government dollar balances are already so low that there really wouldn’t be any significant sum to freeze. The Bank of China holds fifty-eight million dollars worth of short-term U.S. Treasuries which are earmarked against its banking liabilities in New York. The New York State Banking Commissioner has already reached an agreement with the Bank of China in New York whereby these bonds are held, in effect, in escrow and can only be withdrawn for the purpose of liquidating such obligations and upon counter-signature by a representative of the Commissioner. The total of miscellaneous banking balances of various agencies of the Chinese Government six weeks ago totalled only about twenty million dollars. The Treasury guess is that there is only a small fraction of that amount today.
In the light of this situation, it does not seem to me worthwhile to contemplate any freezing or comparable action at any future time against so insignificant a sum.
I outlined this situation to Mr. Butterworth yesterday and he expressed concurrence.