893.51/6796: Telegram
The Chargé in China (Peck) to the Secretary of State
[Received February 7—5 a.m.]
78. My 77, February 6, 2 p.m.92 During the same interview Kung93 said that he was very disturbed at Japan’s endeavors to obtain control of China’s currency which was just as serious a threat to China as military operations. He heard that the Japanese were about to create a “new China bank” at Shanghai to dominate currency and economic activities generally in Central China and he suspected that they intended to utilize accumulated customs revenues to the extent of Chinese dollars 150,000,000 as the capital of this bank. Information had reached him that they intended to peg the new currency at 8 pence to the dollar.
Although critical of the British attitude toward the controversy in general, he said that in currency matters Great Britain had been more helpful than the United States in one particular, that is, shortly after enactment of the currency legislation of November 1935 the British Government issued an Order in Council making this legislation mandatory on British subjects in China and the authorized note issue therefore became for British subjects the only legal tender. Recently when the Japanese attempted to foist the Federal Reserve Bank note issue on the public in North China British banks had begun to deal in it but when the Chinese Government pointed out that this was forbidden by the Order in Council British banks recognized this and refused further transactions in the Japanese instigated note issue.
[Page 648]Kung said the Chinese Government assisted British banks to avoid depletion of Chinese national currency by turning over to them in Hong Kong supplies of that currency. In contrast with this support of national currency Kung said that he had received a report from Tientsin that the National City Bank had sent a circular to its depositors reserving the right to close out accounts in national currency which action naturally encouraged the use of the Federal Reserve Bank notes. (See Peiping’s 47, January 23, 3 p.m.95) Note: the British Embassy is unable to confirm or deny the statement above that British banks are refusing to deal in the Federal Reserve Bank notes.
Repeated to Shanghai, Peiping. Peiping mail code text to Tokyo.