893.516/596: Telegram

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

347. Reference paragraph 2 of my number 322 of April 29, noon.46 Despite reported promises of manager of Chartered Bank as the senior British bank that the British banks would consult with the American banks with a view to a common policy in regard to acceptance of new Huahsing bank notes, they failed to consult and apparently at the instance of the manager of the Hong Kong and Shanghai Bank the principal British banks have decided to have nothing to do with the Huahsing Bank or its notes. The American banks were not even informed of the decision of the British banks before it became generally known to the latter’s customers on May 1st. It is reported that the British banks intend to base their refusal to deal in Huahsing bank notes on the British orders in council (see this Consulate General’s telegram 645, November 5, 9 p.m. [a.m.?], 193546) It will be recalled that early in March of this year the British banks in North China announced their policy in regard to Federal Reserve Bank notes and without having first consulted the American banks sought to bring pressure on the latter to adopt the same attitude in the interest of a “common front”.

American bankers here now seem to feel that they may eventually find it necessary to handle the Huahsing bank notes for their customers on a cautious quick conversion basis although it is believed that they will probably decline to accept deposit accounts from the Huahsing Bank for the present at least. They seem to feel that so long as the Huahsing bank notes are freely convertible to national currency or foreign exchange refusal of the foreign banks to handle the notes would not greatly hinder their circulation.

While Counselor Morishima told me that there was no intention to establish any export or foreign exchange control, as in the North, it is noted that Japanese spokesmen in answering questions of press [Page 402] correspondents say there is no intention to do so “for the present” and this is understood to be the attitude taken by the Japanese in conversations with the foreign bankers. American bankers and other competent observers feel that the major purpose of introducing the new bank and bank notes is to facilitate the introduction of trade controls at a later date. This view is understood to be shared by the Commercial Counselor of the British Embassy.

Repeated to Peiping, to Chungking. Code text by mail to Tokyo.

Gauss
  1. Not printed.
  2. Not printed.