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A3725

12 AUG 1940 LIMITED DISTRIBUTION

The Marquess of Lothian, (Washington)

Decypher.

D.

12.50 a.m. R. 10 a.m.

No. 1671

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369

10th August 1940.

IF 38.51

11th August 1940. 11th August 1940.

3 AUG 1940

IMPORTANT

Following for Treasury from Financial Adviser.

of New York

T. V. Soong informs Hall-Patch that £385,000 of Chinese Government funds were transferred to Credit Limited branch of Bank of China before July 18th. He states that by error this transfer was not notified to Federal Reserve Bank, and he appears to think that for this reason sterling cannot now be sold on New York market. He would like our consent to his selling this amount on free sterling market in New York and is prepared to undertake to convert slowly so as not to depress market rate.

Hall-Patch has emphasized the narrowness of New York market, turn over on which is erratic but often below £50,000 a day. He has also pointed out the difficulty you may have in accepting above suggestion. It is not, however, altogether clear whether, this sum having been transferred to a New York bank before July 18th, its sale on New York market would be adapted to arrange- ments you have made with American banks.

I have ascertained from very confidential sources that Bank of China sold over £500,000 sterling in 3 days 15th to 17th of July inclusive.

If proposed sale is consistent with arrangements, or if made with American banks no question arises. If, however, it is not consistent with these arrangements, I think it would be inadvisable for you to give your consent, both because Bank of China had already sold [?substantial] amounts before July 18th and because American interests might resent your giving consent to a transaction which would form an exception to the arrange- ments made with them, and could hardly fall to depress the rate on very narrow free market.

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