893.51/7712
Memorandum by the Chief of the Division of Far Eastern Affairs (Ballantine)56
Subject: Sale of Gold to Chinese Government for Resale in China to Combat Inflation.
On July 13 Mr. Berle wrote to Mr. White,57 Assistant to the Secretary of the Treasury, that the Department would give the above-captioned matter close study and would expect to communicate further with him in regard thereto at an early date.
[Page 443]FE has examined the correspondence on the matter and is impressed by the following points: (1) that the project if well administered has possibilities of helping to check inflation, and of being less wasteful of the American $500,000,000 financial aid than the savings certificate project, (2) that the Chinese Government should be entitled to use proceeds of the $500,000,000 loan as it sees fit, (3) that the Treasury has notified Dr. Kung that it agrees to the project, (4) that Dr. Kung seems to think that the President as well as Mr. Morgenthau has agreed to the scheme, (5) that the Chinese Government has formally requested the sale to it of $200,000,000 of gold after having been told by the Treasury that great costs, difficulties, dangers, and sacrifices of foreign exchange are inherent in the project, and (6) that competent Chinese as well as Mr. Adler favor the initiation of the project on an experimental basis.
It has been noted that Mr. Adler believes that, with adequate controls, an effective scheme for the use of gold in China would undoubtedly have beneficial effects in checking inflation. Mr. Adler, however, does not appear to believe the Chinese have yet worked out any such scheme and he raises the question whether it would be possible for the Treasury discreetly to ask them just what their plan is. Mr. Adler has some apparently very good ideas on the subject, in particular, the desirability of prohibiting the government banks from buying gold except as intermediaries for resale to the public. Mr. Adler also makes what seems to us a valuable suggestion, namely, that the scheme be put in motion by the sale to the public of 48,000 oz. of gold now in the possession of the Central Bank, this gold to be replaced by a like sum from South Africa or Australia and the same amount to be earmarked for such shipper in the Federal Reserve Bank in New York.
In the light of conditions in China, FE agrees with Mr. Adler that it would be advisable for the Treasury discreetly to ask the Chinese to explain to us precisely how they plan to use the gold for combatting inflation and that the project should be begun experimentally.
With the foregoing points in mind, we have drafted a letter to Mr. White for Mr. Berle’s signature.58