893.51/6940: Telegram
The Ambassador in China (Johnson) to the Secretary of State
[Received July 18—8:20 a.m.]
445. Young informed McHugh on July 17 that the drain during the preceding 3 days on the Stabilization Fund had been unusually heavy, about half of the demand coming from the American Express Company and the National City Bank. He asserted that support of the Shanghai market by the Fund would have to be discontinued in the very near future unless further financial aid is received from [Page 685] abroad or some very unusual turn occurs in the political situation. He denied any knowledge or hope that London might make a further contribution to Fund.
Young stated that the restrictions on withdrawals instituted on June 22 to meet the last crisis had not been made as stringent as he had recommended and that as a result money had leaked into the market as well as being forwarded from other parts of China. A temporary breathing spell had been achieved however which had given time for the issuance of new regulations providing for the prohibition of certain imports, rationing of exchange for essential exports and requiring the delivery of export exchange to the Government.
It is hoped that the measures applied in the Government controlled areas will help to hold up the value of the currency in the occupied areas. This end will also be served if the Japanese try to maintain the value of the currencies which they sponsor there. He also believes that the Japanese notes will be handicapped further by unpopularity and by the unfavorable balance of exports resulting from the large demand for imports plus the Japanese obstruction of normal export channels and attempts at monopoly which will further assist Chinese currency in competition with Japanese. He admitted, however, that a serious black market on Chinese currency within the occupied areas may be expected to develop as soon as the fund ceases operation. Young informed me that contrary to expectations of Dr. Kung, reported in my 408, June 26, 9 a.m., French have not made any contribution to the Stabilization Fund.
Repeated to Shanghai.