Foreign Relations of the United States, 1955–1957, Japan, Volume XXIII, Part 1

203. Letter From the Assistant Secretary of State for Far Eastern Affairs (Robertson) to the Assistant Secretary of the Army (Roderick)¹

Washington, August 2, 1957.

Dear George: As suggested in your letter of June 19,² we have again reviewed³ the proposal to introduce dollar currency in the Ryukyu Islands in place of the presently circulating B yen. We took occasion at the time Ambassador MacArthur was in Washinton during the recent visit of Prime Minister Kishi to discuss this question with the Ambassador. He expressed fear of this action from the standpoint of our relations with Japan and indicated that he thought the introduction of dollar currency as the circulating medium in the Ryukyu Islands would be an unfortunate move. We continue to share this view and to hope that a way can be found to handle the Ryukyuan currency problem with a minimum of disturbance.

Although we recognize that the introduction of the dollar currency in the Ryukyus could have economic benefits and would have advantages from an administrative viewpoint, our inability to agree is based on political considerations. As you know, the reversionist sentiment in the Ryukyu Islands results largely from agitation originating in Japan. Although the United States Government policy on the need to retain our position in the Ryukyu Islands was fully explained to the Japanese Prime Minister while he was in Washington, it is to be expected that the Socialists and the communist elements in Japan will continue to agitate. They will do so because it is an issue which has political value, both from the viewpoint of obtaining support from those elements in Japan who feel strongly on the question and from the viewpoint of trying to frustrate Prime Minister Kishi and the Liberal-Democratic Party in their efforts to establish a closer relationship with the United States. It is anticipated that the introduction of United States dollars in the Ryukyus would be used by these agitators in an effort to demonstrate that the United States intends to retain the Islands in perpetuity and does not seriously intend that they will some day be returned to Japan. We continue to feel that our required tenure in the Ryukyus will be more acceptable to the Japanese and the Ryukyuans when actions taken do not provide ammunition to the Socialists and Communists in cases where our purposes can be achieved by a course not entailing such a result.

On the other hand, the Department of State concurs in the desirability of avoiding debate in the United States Congress on the currency question in the Ryukyu Islands because of the attendant publicity in Japan which would result from such debate. Accordingly, we should like to suggest an alternate procedure. This procedure would involve putting the B yen on a more regularized basis in the following manner, it should be possible through administrative action to indicate that the B yen is backed one hundred per cent by the United States dollars available in the Ryukyuan Foreign Exchange Fund and therefore is freely convertible into dollars. It would appear also to be feasible administratively to indicate that B yen are available to United States agencies and United States individuals in the Ryukyus only through purchase with United States dollars through the mechanism of the Ryukyuan Foreign Exhchange Fund.

In this connection it would, of course, be desirable to replace, over time, the present bills which are circulating in the Ryukyus. As you know, they carry the indication that they are occupation currency. It would seem relatively easy, however, to replace these pieces of paper gradually, as the ones in circulation wear out, with currency more in keeping with the present status of the Ryukyu Islands under the terms of Article 3 of the Peace Treaty. Replacement of worn out bills is presumably done in any case. Would not this course of action meet the needs of the situation as described in your letter and in the report of the Inter-Agency Technical Mission, without running the risk of increasing the agitation from Japan for the reversion of the Islands to Japan? With full dollar backing and free interchangeability with dollars, the B yen would in essence become dollar currency, but without the political difficulties which would accompany the introduction of dollar currency.⁴

The Department of State would appreciate your giving further consideration, in consultation with the Department of the Treasury, to resolving the current currency problem in the Ryukyu Islands along the lines of the above suggestion.

I am sending copies of this letter to the Assistant Secretary of Defense for International Security Affairs, and the Director of the Office of International Finance, Department of the Treasury,⁵ for their information.

Sincerely yours,

Walter S. Robertson⁶

1. Source: Department of State, Central Files, 894C.13/6–1957. Confidential. Drafted in NA.
2. Not printed. (Ibid., 894C.13/6–1957)
3. Robertson’s previous letter to Roderick on this subject was dated May 22. (Ibid.,FE Files: Lot 59D19, R)
4. In his June 19 letter, Roderick had disagreed with the view that the introduction of a dollar-backed currency would avoid the political disadvantages foreseen in the introduction of dollar currency on the ground that even dollar-backed yen would require Congressional authorization, with attendant publicity.
5. George H. Willis.
6. Printed from a copy that bears this typed signature.