Foreign Relations of the United States Diplomatic Papers, 1939, The Far East, Volume III

893.516/593: Telegram

The Secretary of State to the Consul General at Shanghai (Gauss)

Washington, May 4, 1939—1 p.m.

143. Reference your 316, April 28, 1 p.m., 319, April 28, 5 p.m., 322, April 29, noon, and 328, May 1, 4 p.m.⁴⁵

1. There are indications in the telegrams under reference that the funds to be used for financing the bank are customs revenues supposedly held in a “suspense account” in the Yokohama Specie Bank. The Department would like to have such further information as you may be able to obtain as to whether the customs revenues are in fact being so used and if so your opinion whether representations to the Japanese Government against disposal in such manner of customs revenues would be advisable at this time. The Department would also appreciate receiving any information you may be able to furnish in regard to the probable amount of customs revenue which has accumulated in the Yokohama Specie Bank from customs collections in central China, how much of this revenue remains in the form of Chinese currency, and how much, if any, has been converted into specie or foreign exchange.

2. It appears that, with a view to launching the new currency successfully, the Japanese officials concerned desire to have foreign banks accept deposits in the new currency and as an inducement have promised to deposit with those banks more than enough Chinese national currency to cover any amount of the new notes accepted by those banks. It is not apparent to the Department that advantage would accrue to American or other foreign banks in thus assisting the new bank in the launching of its note issue. The Department concurs in your skepticism in regard to Japanese statements that there is no intention to set up a new currency or to control exports and export credits.

3. In connection with the trade and exchange control measures instituted in north China on March 11, 1939, the Department informed an official of the National City Bank (and indirectly the Chase Bank) that the Department would welcome the maintenance by foreign banks in China of a united front against such measures, and so far as the Department is aware, the American banks in north China are cooperating with other foreign banks in resisting the trade and exchange restrictions which have been established there. Officials of the National City Bank and of the Chase Bank at Shanghai are probably aware of the Department’s attitude in this matter.

4. The Chinese Embassy here has informed the Department orally that in the opinion of the Chinese Government the proposed currency move in Shanghai, if successful, would be an entering wedge for Japanese financial control and would operate against China’s interests as well as foreign interests; and that it would be harmful because of its inflationary effects. The hope was expressed that the American Government would see its way clear to ask American banks not to accept the new notes and not to cooperate with the new bank or the new currency. The Embassy was informed that the Department is studying the whole matter.

5. It is suggested that you state informally to officials of American banks in Shanghai that, based on such information as is now available, the Department’s position in regard to the new currency developments in Shanghai is identical with its position in regard to the Japanese trade and exchange control measures in north China outlined in paragraph 3 above and that the Department hopes that American banks in central China will see their way clear to refrain from any action which might assist the Japanese in establishing the new bank and launching a new currency.

6. You are of course authorized in your discretion to confer with your British and other colleagues.

Repeated to Chungking and Peiping. Shanghai please repeat to Tokyo.

Hull

45. Telegrams Nos. 319, 322, and 328 not printed.