Office of the Historian

893.5151/10–446: Telegram

The Ambassador in China (Stuart) to the Secretary of State

Nanking, October 4, 1946—10 a.m.
[Received 4:40 p.m.]

1589. From Adler for Secretary of Treasury.

1.
In conversation of September 30 reported in Embtel 1588 of October 4 Pei also discussed marked local open market appreciation of US currency after September 19. In addition to long-term weakness of Chinese currency, other causes for appreciation of US currency were:
(a)
Speculative rumors in connection with impending closing up of foreign currency accounts on September 30 and with forthcoming meeting of Board of Governors of International Monetary Fund, which gave rise to unfounded expectation that China would have to declare initial par value of its currency.
(b)
Central Bank’s none too successful attempts to tighten up on the granting of exchange cover for imports.
(c)
Decline in new supplies of US currency coming into China, though Pei informs me that considerable amounts of US currency continue to be smuggled into China.
2.
T. V. Soong and Pei were alarmed when open market rate for US currency went over 4,000 as Shanghai prices continue to be sensitive to fluctuations in quotations for foreign currency. Pei was most [Page 1012] reluctant for Central Bank to go into open market, as he felt that its intervention in support of CN could not be kept secret and that once knowledge got around speculative demand would force Central Bank to sell large amounts of US currency. Nevertheless Central Bank has anonymously been supporting market at rate of about 4 lakhs of US currency a day for the last week or so.
3.
In this connection Pei informed me that he obtained about 300,000 of US currency from the Navy and that he has asked it for another 3 million. This request the Navy has transmitted to Washington for approval. He would appreciate it if the Treasury would support this Central Bank request.
4.
Finally Pei indicated that Chinese financial authorities are studying the problems arising from the circulation of US currency in China, which is being used as a unit and store of value to an increasing extent, particularly in Shanghai. He feels that such questions as the existence of a discount on notes of large denominations and on so called soiled notes cannot be tackled piecemeal but is not sure that the time yet ripe for grappling with problem as a whole. [Adler.]
Stuart