893.50/7–2049: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received July 20—3:02 p. m.]
1560. Received Embtels 1553 to Department, repeated Shanghai 871, July 18; and 1555 to Department, repeated Shanghai 872, July 19.38 [Page 800] Department will have noted rapidly growing spread between market prices and official [and?] even BM rate exchange for US dollar. This development causing Embassy increasing concern for future. Embassy sees every likelihood sharp upward commodity price trend will continue. Embassy estimates that from June 18 to July 18 official exchange rates US dollar rose 30 percent while market prices Nanking generally rose 170 percent. This trend believed general throughout Communist areas but especially acute Yangtze Valley.
Current jumps in prices are occasioned by number factors including the effective closure Shanghai port to foreign shipping and trade with immediate effect on supply. This closure simultaneously influences demand for US dollars most adversely. With present prospects of expanding their foreign trade so dim, Communists obviously can see no compelling reason to encourage surrender foreign exchange in Communist China, the more so because each dollar and each draft or TT cashed means an outpayment of PN which will reinforce inflationary pressures already so intensely at work. Furthermore, Commies can be expected try to buy foreign exchange as cheaply as possible.
Normal operating expenses of the Embassy and Consulate as well as other foreign institutions dependent upon financial resources from abroad may rise at fantastic rates in terms of US dollars. Department will recall that when such situation developed under Kmt special rates arranged for diplomatic, consular corps or else at certain points recourse was had to black market. Hardly need be mentioned that currently hostile attitude authorities makes special rate deal most unlikely. Recourse to BM at present and probably in future would be extremely dangerous to security of Americans or their Chinese agents unless Communists forced reverse present policy and leave BM dealers unmolested which most unlikely.
Even if Communists not deliberately intend such, their financial policy may become mighty factor quickly freezing out many foreign interests Communist areas.
Sent Department 1560; repeated Shanghai 760.
- Neither printed.↩