893.515/1527
Memorandum by Mr. George F. Luthringer of the Office of the Adviser on International Economic Affairs
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II.
I am inclined to believe that the disadvantages of freezing Chinese funds at this time would probably exceed the gains. This in my opinion would be particularly likely if Japanese assets were not frozen at the same time. Regardless of whether Japanese funds would be frozen at the same time as those of China, it is highly probable that the freezing of Chinese funds would lead to the assumption of more complete control of Chinese foreign trade by Japan. However, if Japanese funds were frozen simultaneously, one of the leading incentives for Japanese control of Chinese exports (i. e., the acquisition of U. S. dollars by Japan) might be removed. Moreover, the freezing of Chinese funds might induce an intensification of the flight from Chinese currency to Japanese or Japanese-sponsored currencies which appears to be taking place at the present time. If at the same time, however, Japanese funds were also frozen, this flight from Chinese currency might be retarded since the freezing of Japanese funds in this country might well affect the desirability in the eyes of the Chinese of holding Japanese currency. This might particularly be the case if the freezing control were applied harshly to Japan but leniently to China.
I should like to point out, however, that in my opinion unless there is a general freezing order, the extension of the freezing order to Japan would in all probability invite a very serious dispute with that country.32
III.
For the foregoing reasons I think it desirable to push ahead as expeditiously as possible (as is being done) with the completion of the Anglo-Chinese and Sino-American monetary agreements and to defer [Page 622] for the time being an extension of our foreign funds control to China. I would agree, however, that we should attempt to work out as best we can in advance the procedures and policies to be followed under those agreements in case it should become necessary to freeze Chinese funds.
- Marginal notation by the Adviser on Political Relations (Hornbeck): “We already have this. S. K. H.”↩