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DEPARTMENTAL NO.12.21 DEC 1940
Decypher.
The Governor, (Hong Kong).
18th December, 1940.
D.
4.52 p.m.
19th December, 1940.
R.
1.15 a.m.
20th December, 1940.
No. 140.
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IMPORTANT.
JJJJJJJJ
F5678 play!
My immediately preceding telegram. Following for Treasury from Rogers.
-5205-
Надя
Paragraphs 5 and 6 of your telegram No. 3144 to Washington.
Equilibrium in cross rate having been established for some time between 3.70 and 3.80 it will be difficult for the Chinese to realize that the slightest evasion of your control arising from such a moderate depreciation is such as to cause you real anxiety or to call for a change in the status quo. If evasion is your main concern, they would I submit justifiably expect defects in the administration of Empire exchange controls to be corrected rather than checks imposed upon the free disposal of their foreign exchange. They would also contest your view that a fall in cross rate would necessarily react unfavourably upon Chinese dollars.
2. I am reluctant to feel that China may have little choice in accepting new situation_but in view of publicity already given to your proposals, I assume that it would be difficult to reconsider their general form.
> to contin
After long
3. Your proposals however seem to me [grp. undec.] dangerous possibilities both political and economic. and careful consideration, I therefore feel constrained to urge not only the obvious necessity of avoiding any semblance of bargaining with the Chinese in concluding technical arrangements you desire to make with them, but that the fullest consideration may be given to allow China a quota of United States dollars on the grounds set out below.
4.
(a) Balance of payments to Japan with [? grp. omit.] appears to be unfavourable.
(b) Japan consequently has been a consistent buyer of sterling from China against United States dollars in Shanghai.
(c) Presumably action with regard to China and Japan would be taken simultaneously.
(a) Payments Agreement would furnish your control with the United States dollars previously sold by Japan to China.
(e) In return for her co-operation in helping to abolish free sterling market in Shanghai, China could reasonably expect an administrative [? grp. omit.] of above United States dollars. 5. (a) Five million pounds currency loan would become more than a political gesture.
(b) Removal of part of additional demand for Empire goods would improve the chances of giving effect to five million pounds export credit.
(c) Adverse development of Empire barter terms of trade, see second paragraph of my immediately preceding telegram, would be minimised.
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