197. Memorandum of a Conversation, Department of State, Washington, January 17, 19571


  • Korean Exchange Rate


  • Korean Government
  • Mr. Kim Hyun-chul, ROK Reconstruction Minister and Economic Coordinator
  • Mr. Pyo Wook Han, Minister of Korean Embassy
  • Mr. Chun Bung-ku, Vice Minister of Finance
  • United States Government
  • Department of State
  • Mr. Robertson—Assistant Secretary for Far Eastern Affairs
  • Mr. ParsonsNA
  • Mr. DavenportNA2
  • Mr. WeintraubNA
  • Miss Milne—FN3
  • Mr. Glitman—FN4
  • Treasury
  • Mr. Diehl5
  • Mr. Hirschtritt
  • Commerce
  • Mr. Baran6
  • Mr. Camelio
  • ICA
  • Dr. Moyer
  • Mr. Williams7
  • Mr. Stettner8
  • Mr. Costanza
  • Defense
  • Captain Robbins
[Page 385]

Mr. Robertson noted that the existing rate of 500 hwan per dollar has been in existence since August 1955 and that during this period there has been some rise in the Korean price level. Many people within the U.S. Government, he said, believe that the exchange rate should be raised. At the same time, he said, the United States appreciates the efforts made by the Republic of Korea to maintain financial stability and the cooperation which has existed towards this end between officials of Korea and the United States. Mr. Robertson said although economists might argue about some of the adverse consequences which can result from not having a realistic exchange rate, it is the view within the U.S. Government, taking into account all pertinent considerations, including the proposals of Korea regarding the exchange rate, and the excellent record and efforts of Korea to maintain financial stability during the past year, that the U.S. will agree to continuation of the 500 to 1 rate for 1957. At the end of the year, he said, should the wholesale price index show a change of 25 percent or more either upwards or downwards as compared with the September 1955 average of the index, the exchange rate would be adjusted in the same direction. Thereafter, he said, the U.S. believes the exchange rate should be reviewed every six months. Mr. Robertson said that it seems advisable to continue the 500 to 1 rate for 1957 in view of past Korean efforts to maintain its validity, and that its further continuation similarly will depend principally on Korean actions.

Minister Kim said that Korea certainly would do its best to maintain financial stability and will cooperate fully with the U.S. in this regard. He said that Korea considers 1957 a critical test year. He noted that since August 15, 1955, when the 500 to 1 rate went into existence, until a few months ago, the price structure remained rather steady; in recent months due to a bad rice crop the price structure started to climb. However, since it has become known that Korea would get grains under P.L. 480, rice prices already have started to decline, and, he said, he believed they would decline further if rice shipments arrived in Korea expeditiously.

Mr. Robertson said that inflationary pressures will exist in Korea as long as the country has to support an army of 700,000 men. The inflation, he said, really was a by-product of this military operation and not due to the exchange rate. He said that it was in Korea’s own interest, after taking another look at the 500 to 1 rate, to make an [Page 386] adjustment in the future if this is required since it was impossible by fiat to make any exchange rate stick. The United States and Korea both, he said, are taking a calculated risk. The U.S. objective in Korea, he said, is to get the most viable economy possible and the establishment of any particular rate should not be interpreted as an advantage to either one side or the other. The U.S., he said, is abdicating its doubts in view of the excellent results obtained in Korea during the last 15 months.

Minister Han expressed appreciation on the behalf of Korean Ambassador Yang. He said that he was pleased that the U.S. was going ahead with the 500 to 1 rate extension despite some doubts and that this speaks well of the United States and Korea as working as a team. He said that he thought Korea had done well in the last 15 months and that he believed the Korean Government could in the future be kept on a sound footing. He stressed what he said was the psychological importance to the population of Korea of maintaining the existing exchange rate. He noted that Korea must maintain its army as long as existing dangers continue, but that some day he hoped there could be an over-all solution. Minister Han said that he appreciated the willingness of the U.S. to concur with the extension of the existing rate, and that he is sure Korea will prove worthy of the confidence placed in it.

Mr. Robertson left the meeting.

Dr. Moyer noted that he and several other persons present had attended the exchange rate discussions in 1955 and that as a result he took an unusual interest in the successful Korean effort to improve its inflationary situation. He said that much soul searching was involved in agreeing to the present exchange rate continuation and that many persons in the U.S. are questioning whether this really is the wisest course for Korea in its own national interest.

Dr. Moyer said that grain prices are an important element in Korea’s price structure and that he was pleased that Minister Kim felt Korea could control these prices with the help of grain supplied under P.L. 480. He noted that Korea was also thinking of purchasing rice from commercial sources. He said he hoped, should the grain situation threaten the entire price structure in Korea, that Korea would cooperate with the U.S. in reprogramming of aid supplies where necessary. Minister Kim responded that there was no question but that the Korean Government would do everything possible to keep the grain prices under control since such action was in its own best interests.

Mr. Parsons said that the decision on the exchange rate must, of course, be formalized. He noted that the U.S. Embassy in Seoul received [Page 387] a letter dated August 29, 19569 from Acting Foreign Minister Cho of Korea in which the latter asked for extension of the rate through December 1957 and proposed certain actions which the ROK on its part would take. Mr. Parsons said that the matter could be formalized either by instructing the Embassy in Seoul to answer Minister Cho’s letter or that an instrument could be drawn up for finalization here. In the latter case, he said, the Embassy would at some future date acknowledge Minister Cho’s letter merely noting that the action requested had been completed.

Minister Han said that Minister Kim has full authority to sign any agreement. It was arranged that a draft of the proposed U.S. note would be given informally on January 18 to the Korean Embassy for possible signing on January 23 when Minister Kim returned from New York to Washington.

Mr. Parsons reviewed the pertinent portions of the U.S. note: 1) extension of the current 500 to 1 rate to December 31, 1957; 2) at the end of 1957 the average of the Seoul wholesale price index for the period July 1–December 31, 1957 would be compared with the average of the index for September 1955; 3) if the July–December 31, 1957 average index was 25 percent or more at variance with the September 1955 base there would be an automatic adjustment of the exchange rate as of January 20, 1958 unless some other course of action were mutually agreed upon; 4) following 1957, the average of the index for the six months ending June 30 and December 31 of each year would be compared either with the September 1955 average or the six month average of any subsequent period on which an exchange rate revision had been based, whichever were later. The 25 percent cutoff would be used for such comparisons.

It was agreed that there would be no publicity until action is formalized.

  1. Source: Department of State, FE Files: Lot 59 D 19, MC–Koreans 1957. Confidential. Drafted by Weintraub.
  2. Philip M. Davenport, Office of Northeast Asian Affairs.
  3. Matilda L. Milne, Chief, Exchange Rates, International Finance Division, Office of International Financial and Development Affairs.
  4. Maynard W. Glitman, International Finance Division, Office of International Financial and Development Affairs.
  5. William W. Diehl, Chief, Far Eastern Division, Office of International Finance.
  6. Saul Baran, Chief, Japan–Korea Section, Bureau of Foreign Commerce.
  7. Justin Williams, Chief, Korea Division.
  8. Walter F. Stettner, Deputy Director, European Program Division.
  9. Not found in Department of State files.