102.81/2–2746: Telegram
The Counselor of Embassy in China (Smyth) to the Secretary of State
[Received February 27—7:50 p.m.]
377. For Commerce. National Government announced February 25, 1946 “Temporary regulations with regard to foreign exchange transactions.” Except where noted, regulations summarized herewith, are effective after March 4, 1946:
Authority for centralized control of foreign exchange transactions is Central Bank of China which is directed to exercise among others following major special functions: (1) appoint banks (termed “appointed banks”) that may engage in foreign exchange transactions; (2) license for a specified period banks, including old style bank and exchange shops to deal in foreign currency notes; to license travel agencies to issue and cash foreign currency, traveler’s letters of credit and traveler’s checks; and to license persons to act as foreign exchange brokers; (3) to intervene in financial markets when the bank deems it necessary to check fluctuations of rates.
[Page 951]Only appointed banks, licensed dealers, and brokers may buy and sell foreign exchange. Central Bank will issue or refuse licenses to all licensed dealers or brokers in foreign exchange and will announce date or dates after which dealing in foreign currency notes and issuing and cashing foreign currency, traveler’s letters of credit and traveler’s checks, except by appointed banks, shall be prohibited without license. Applications for licenses may be made after February 25, 1946.
In connection with actual foreign exchange transactions regulations provide that official rates of foreign exchange and foreign exchange supplements are abolished as of February 25, 1946. After March 4, appointed banks may sell foreign exchange to the public only (1) to pay the cost of importing goods whose importation is permitted, (2) for legitimate personal requirements in accordance with the regulations, and (3) for other legitimate purposes authorized by the Central Bank of China. Appointed banks may buy foreign exchange arising from the following transactions: (1) exports or re-exports from China, (2) remittances from abroad to China, (3) foreign exchange sold for expenditures in China, (4) other foreign exchange.
Additional regulation effective February 25, 1946 provides that no bank may open new foreign currency accounts, except that “when a person deposits with an appointed bank margin in foreign currency against foreign exchange to be delivered to him or paid for his account in future, the bank shall deposit an equal amount with the Central Bank of China, which will refund the amount to the bank, at the time the foreign exchange is transferred, to or for the account of such person by the bank.” Until further notice by the Central Bank of China no bank may make any fresh loan or increase or renew for a total of more than 3 months from the date when the regulations enter into force (March 4, 1946) any existing loans in Chinese national currency on the security of foreign exchange. Appointed banks may not engage in foreign exchange transactions in connection with export of capital from China or speculative or arbitrage purposes, whether for their own account or for public.
Regulations provide, in addition, that any person in China whose foreign exchange or other property or property interest abroad is blocked may apply to Central Bank of China for permission for use thereof for purposes permitted under regulations. Public may buy and sell gold freely; Central Bank of China may buy and sell gold at its discretion.
From February 25, 1946, import and export of foreign currency notes is prohibited without license from Ministry of Finance, provided, however, that a person may bring to, and take from China for his personal use amount not exceeding US $200 or equivalent.
[Page 952]Also announced as of February 26, 1946, were “temporary regulations governing import and export trade,” summary of which to follow by cable.83 Complete text both sets temporary regulations are being forwarded airmail.84
Announced February 26, 1946, was appointment as Governor, Central Bank of China of Pei Tsu Yee (with Bank of China since 1916 and General Manager since 1942). Pei succeeds O. K. Yui, Finance Minister, who resigned post of Central Bank Governor.