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with sterling. United States dollars are received from exports but on balance China has to pay United States dollars. A policy of filling up of the hole from Chinese Government's reserves must be rejected. Deficit could if possible be met through a change in the direction of trade. From the point of view of Exchange Control, the practical effect of programme on China might be as you expect. Present indications however suggest it would be at the expense of vital war-time interests of China.
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4. It may be you have data not available to me. I have still an imperfect understanding of your programe.
But on my present estimate I should regard it as the greatest misfortune if after 3 years of war China should have to face a prospective serious disturbance to her delicately poised currency and war-time economy on account of outside factors beyond her control. I suggest therefore for your most earnest consideration whether course C of Acting Governor of Hong Kong's telegram No. 84 or some equivalent arrangement 34 could not be adopted. As China almost alone seems to be
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affected by proposed programme cost involved would be a very small part of the British war effort and would be an appropriate and realistic contribution towards.China's unsupported struggle against aggression.
Repeated to Shanghai telegram No. 123.
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