893.515/1564
The Ambassador in China (Gauss) to the Secretary of State
[Received November 27.]
Sir: I have the honor to enclose a copy of despatch no. 166, October 6, 1943, from the Embassy officer at Chengtu, with enclosures,70 articles by Dr. Chao Shou-yu of Yenching University and Dr. J. Lossing Buck of Nanking University on the subject of China’s obtaining 5,700,000 ounces of gold from the United States announcedly for sale in China to absorb excess currency.
Summary: Professor Chao and Dr. Buck agree that there is no evidence of a substantial demand for gold as an investment or as a medium of speculation. Professor Chao contends that sale of gold can be no more than a temporary palliative in itself and that strict enforcement of the “Revised Emergency Measures for Control and Regulation of Banks” would be a more effective means of stabilizing prices. Price control measures, he states, have failed because of the craftiness of merchants and the lack of established moral standards among officials. He expresses the hope that the Central Bank will not make loans against gold, as it has against U. S. dollar savings certificates. Dr. Buck points out that the price of gold has consistently [Page 454] lagged behind commodity prices since the middle of 1940 and that in August, 1940, the purchasing power of gold reached its lowest point since the start of hostilities in China. Sale of a large amount of imported gold might be expected to reduce its purchasing power still further. Gold, he believes, is unattractive as a hedge against a break in commodity prices, as gold prices would inevitably fall along with other commodity prices. It is currency therefore, rather than gold that would be likely to be hoarded as a hedge. The price of gold in Chengtu, according to Mr. Smith, has declined from CN $12,000 a liang (1.00471 oz) to CN $9,000 since the announcement of the government’s gold sale plan. End of summary.
Professor Chao’s statement that sale of gold can be only a palliative and must be accompanied by other measures to control prices is in agreement with opinions of officials of the Ministry of Finance. His assumption that the gold will be sold through the Central Bank does not appear to be well founded, as Ministry of Finance officials have privately stated that, while it has not been decided how the gold will be sold, it definitely will not be sold through the government banks. He points to a real danger in his caution against permitting speculators to borrow from the Central Bank against gold, as they already do against U. S. dollar savings certificates.
Dr. Buck’s contention that the market for gold is limited and that its purchasing power will decline still further if large quantities are offered for sale appears to be well founded. Many writers in local periodicals proceed on the assumption that it would be possible to sell 5,700,000 ounces of gold to the public in a short period at CN $10,000 an ounce. It is notable that gold prices in centers near Japanese occupied territory, such as Kweilin and Loyang, have continued firm despite the announcement of the government’s plan, whereas in interior centers they have declined materially.
Respectfully yours,
- None printed.↩