enable them to support the Chinese currency by proceeding
Witt the proposal outlined la paragraph 1 of the Aide
i*£moi*o left at Hie State Department on the 7th December,
provided that the United States Government are prepared to
take parallel action to support the Chinese currency at the
same time.
'£he United states Government are aware that His
Uajesty** Government have already allocated to China about
£500,000 of credits which will become available when the
Export Guarantee Bill la passed.   In addition to this It le
proposed to earmark further substantial amounts to assist
Chinese Government purchases in the United Kingdom though
this roust of course on no account bo disclosed to the
Chinese at present*   His Majesty's Government consider that
this should be regarded as their counterpart to the
commercial credits granted by the United states Government
last month*
His Majesty's Government on the proposal for a guaranteed
contribution of £3,000*000 to the projected currency
stabilisation fond and attach particular importance to
this form of assistance.    From information now in their
possession Kb Majesty's Government think the time has
come when action of this kind might have the maximum of
effect with the minimum of risk*   Already the tone of the
United states note and the decisions to give credits have
The Chinese Government meanwhile continue to press
produced/

n
-2-
produaed a salutary effect on the Japanese who have
•kown eigne recently of being sore accommodating, out
the •ffect produced by parallel action of the two govern-
ments on the lines of simultaneous contributions to the
currency stabilisation fund night, in the view of Els
Majesty's Government, be expected to be ouch greater*
Moreover, the confidence of the Chinese in their
ability to hold out and their Morale generally would be
enormously strengthened by such a gesture which might
indeed prove the turning-point in the whole struggle and
lead to the salvation of United states and British
commercial interests*   Furthermore, the psychological
effect of this move night well show itself in an increased
resiliency of the Chinese dollar, thus reducing the risk of
the contributions to the stabilisation fond being lost*
Nor can the fear of the real danger be excluded
lest, if nothing on these lines is done, the Chinese
might be tempted to despair and make terns with the
Japanese at United States and British expense* His
Majesty's Government are accordingly anxious to take this
action but they could not aet alone*   If the United states
and His Majesty's Government act in harmony the danger of
adverse Japanese political reactions affecting foreign
interests in China would be minimised and the possibility
of maintaining the "open door*1 would be increased*
His Majesty's Government are fully aware that the
United States contribution in the form of (aj silver
purchases and (b) the recent twenty-five million dollars
credit far exeeeda the contribution which His Majesty's
Government/
Government have so far been able to make in rapport
of the Ohlneae currency structure but His Majesty's
Government hope, for the reasons explained above, that the
United states Government may nevertheless be prepared to
participate in the currency stabilisation loan now
proposed*
The procedure being considered by His Majesty's
Government is to guarantee the Hong Kong and Shanghai
Bank against loss but His Majesty's Government recognise that
any parallel action by the United States Government might
have to take a different form.   His Majesty's Government
do not regard it as essential that the amount of assistance
granted by the United States Government should be identical
with the amount which His Majesty's Government propose to
guarantee.   The essential points.* in the view of His
Majesty*8 Government, are that it should be made clear that
the action is being taken by both governments to maintain
their respeotive interests in China which would be seriously
threatened by a collapse of the Chinese currency, and
that the proposed assistance and encouragement should be
given to China at a very early date*
Hie Majesty'8 Government hope that the United
States Government may feel able to take parallel aotion
of the kind suggested*   They would* moreover* be grateful
for a very early reply*
BRITISH BVBASSY*
WASHINGTON, D.C.•
January 6th* 1939*