MAY 20, 1924, 3 COMP. GEN. 871

MAY 20, 1924, 3 COMP. GEN. 871

FOREIGN EXCHANGE RATES IN CHINA THE USE, BY UNITED STATES CONSULAR OFFICERS STATIONED IN CHINA WHEN COLLECTING AND ACCOUNTING FOR FEES COLLECTED BY THEM, OF THE MONTHLY PUBLICATION OF THE FEDERAL RESERVE BOARD OF THE AVERAGE BUYING RATE OF CHINESE SILVER DOLLARS IN THE NEW YORK MARKET WHEN ASCERTAINING THE VALUE OF SAID DOLLARS IN UNITED STATES MONEY, INSTEAD OF THE QUARTERLY RATE OF VALUES AS PUBLISHED IN THE MINT TABLES BY THE SECRETARY OF THE TREASURY AND HERETOFORE USED, IS AUTHORIZED, SUBJECT TO THE RESERVATION THAT THE RATE SO ASCERTAINED SHALL NOT BE CONCLUSIVE ON THE GENERAL ACCOUNTING OFFICE BUT SHALL ONLY HAVE THE SAME WEIGHT AS EVIDENCE AS THAT HERETOFORE GIVEN THE RATE AS FIXED QUARTERLY BY THE SECRETARY OF THE TREASURY IN THE MINT TABLES.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF STATE, MAY 20, 1924:

THERE HAS BEEN RECEIVED YOUR LETTER OF MAY 1, 1924, SUBMITTING FOR APPROVAL A PROPOSED CHANGE IN THE METHOD OF COLLECTING AND ACCOUNTING FOR FEES COLLECTED BY CONSULAR OFFICERS IN CHINA, IN WHICH YOU STATE:

* * * IT HAS BEEN THE PRACTICE FOR A NUMBER OF YEARS TO TELEGRAPH TO THE AMERICAN CONSUL GENERAL AT SHANGHAI, CHINA, THE RATES OF THE MEXICAN AND HONGKONG DOLLARS GIVEN IN THE QUARTERLY CIRCULAR ISSUED BY THE DIRECTOR OF THE MINT SHOWING THE VALUE OF FOREIGN COINS. THIS RATE HAS BEEN ARRIVED AT BY THE DIRECTOR OF THE MINT BY GIVING THE AVERAGE COMMERCIAL RATE OF EXCHANGE BETWEEN NEW YORK AND CHINA FOR THE PRECEDING QUARTER. THESE RATES WERE REPEATED BY THE CONSUL GENERAL AT SHANGHAI TO THE CONSUL GENERAL AT HONGKONG AND TO ALL OFFICERS IN CHINA FOR THEIR USE IN MAKING COLLECTIONS AND DISBURSEMENTS. IT WAS FOUND ADVISABLE TO ADOPT THIS POLICY IN VIEW OF THE DIFFICULTY OF CONSULAR OFFICERS AT PRACTICALLY ALL POSTS IN CHINA IN OBTAINING CORRECT COMMERCIAL RATES FROM LOCAL BANKS AND FOR THE SAKE OF UNIFORMITY THROUGHOUT CHINA IN RENDERING THEIR ACCOUNTS. THIS PRACTICE HAS BEEN CONTINUED SINCE THE ISSUANCE OF GENERAL INSTRUCTION 788 OF JUNE 28, 1921, A COPY OF WHICH IS ATTACHED AND WHICH WAS APPROVED BY YOUR OFFICE.

THE PRACTICE IS, IN EFFECT, THAT WHICH IS USED IN SEVERAL COUNTRIES WHERE THE SUPERVISING CONSUL GENERAL HAS BEEN DIRECTED TO TELEGRAPH DAILY THE RATES OF EXCHANGE TO THE CONSULAR OFFICERS UNDER HIS JURISDICTION.

IT HAS NOW BEEN ASCERTAINED THAT RECENTLY THE DIRECTOR OF THE MINT IN GIVING THE RATES OF THE HONGKONG AND MEXICAN DOLLARS HAS CHANGED THE FORMER PRACTICE AND NOW USES THE SILVER RATE CONVERTED AT THE LONDON EXCHANGE RATE ON SHANGHAI AT THE PAR RATE OF THE POUND STERLING RATHER THAN THE COMMERCIAL RATE OF THE POUND STERLING, SO THAT THE RATE GIVEN IN THE CIRCULAR OF THE DIRECTOR OF THE MINT IS NO LONGER THE ACTUAL AVERAGE COMMERCIAL RATE OF THE SILVER HONGKONG AND MEXICAN DOLLARS. IT APPEARS NECESSARY TO THE DEPARTMENT, THEREFORE, THAT THE PRACTICE WHICH IT HAS HERETOFORE FOLLOWED BE CHANGED IMMEDIATELY, AND IT IS ACCORDINGLY PROPOSED HEREAFTER TO MAKE USE OF THE RATES PUBLISHED BY THE FEDERAL RESERVE BOARD AT THE END OF EACH MONTH, WHICH ARE THE AVERAGES OF THE BUYING RATES OF THE HONGKONG AND MEXICAN DOLLARS IN NEW YORK AS CERTIFIED BY THE FEDERAL RESERVE BANK IN NEW YORK, THESE BEING ALSO THE RATES WHICH ARE CERTIFIED DAILY TO THE SECRETARY OF THE TREASURY FOR HIS USE, UNDER THE TARIFF LAW, IN ASSESSING CUSTOMS DUTIES.

INASMUCH AS THERE HAS BEEN VERY LITTLE VARIATION DURING THE LAST TWO OR THREE YEARS IN THE DAILY RATE OF THE CHINESE SILVER DOLLAR, IT WOULD APPEAR TO THE DEPARTMENT THAT THIS PRACTICE, WHICH IS REALLY THE PRACTICE HERETOFORE FOLLOWED, EXCEPT THAT THE RATE WILL BE TELEGRAPHED MONTHLY INSTEAD OF EACH QUARTER, WILL BE SATISFACTORY AND WILL RESULT, IN NO DISADVANTAGE TO THE GOVERNMENT.

IT IS PROPOSED THAT, IF THIS PRACTICE IS FOLLOWED, CONSULAR OFFICERS SHALL COLLECT THEIR FEES EACH MONTH AT THE RATE TELEGRAPHED AT THE BEGINNING OF THE MONTH--- THAT IS, THE AVERAGE EXCHANGE RATE FOR THE PREVIOUS MONTH--- AND THAT IN RENDERING ACCOUNTS AT THE END OF EACH QUARTER GENERAL INSTRUCTION 788 BE STRICTLY FOLLOWED, EXCEPT THAT THE AVERAGE RATE USED IN THE RENDITION OF ACCOUNTS SHALL BE THE AVERAGE OF THE THREE MONTHLY RATES WHICH HAVE BEEN USED DURING THE QUARTER.

SECTION 1746 OF THE REVISED STATUTES REQUIRES THAT ALL FEES COLLECTED BY DIPLOMATIC AND CONSULAR OFFICERS BY AND ON BEHALF OF THE UNITED STATES SHALL BE COLLECTED IN THE COIN OF THE UNITED STATES OR ITS REPRESENTATIVE VALUE IN EXCHANGE. THE QUARTERLY CIRCULAR OF THE VALUES OF FOREIGN COINS IS ISSUED BY THE SECRETARY OF THE TREASURY PURSUANT TO SECTION 522 OF THE ACT OF SEPTEMBER 21, 1922, 42 STAT. 974, WHICH IS AS FOLLOWS:

SEC. 522. CONVERSION OF CURRENCY.--- (A) THAT SECTION 25 OF THE ACT OF AUGUST 27, 1894, ENTITLED "AN ACT TO REDUCE TAXATION, TO PROVIDE REVENUE FOR THE GOVERNMENT, AND FOR OTHER POSES," AS AMENDED, IS REENACTED WITHOUT CHANGE AS FOLLOWS:

"SEC. 25. THAT THE VALUE OF FOREIGN COIN AS EXPRESSED IN THE MONEY OF ACCOUNT OF THE UNITED STATES SHALL BE THAT OF THE PURE METAL OF SUCH COIN OF STANDARD VALUE; AND THE VALUES OF THE STANDARD COINS IN CIRCULATION OF THE VARIOUS NATIONS OF THE WORLD SHALL BE ESTIMATED QUARTERLY BY THE DIRECTOR OF THE MINT AND BE PROCLAIMED BY THE SECRETARY OF THE TREASURY QUARTERLY ON THE 1ST DAY OF JANUARY, APRIL, JULY, AND OCTOBER IN EACH YEAR.'

(B) FOR THE PURPOSE OF THE ASSESSMENT AND COLLECTION OF DUTIES UPON MERCHANDISE IMPORTED INTO THE UNITED STATES ON OR AFTER THE DAY OF THE ENACTMENT OF THIS ACT, WHEREVER IT IS NECESSARY TO CONVERT FOREIGN CURRENCY INTO CURRENCY OF THE UNITED STATES, SUCH CONVERSION, EXCEPT AS PROVIDED IN SUBDIVISION (C), SHALL BE MADE AT THE VALUES PROCLAIMED BY THE SECRETARY OF THE TREASURY UNDER THE PROVISIONS OF SECTION 25 OF SUCH ACT OF AUGUST 27, 1894, AS AMENDED, FOR THE QUARTER IN WHICH THE MERCHANDISE WAS EXPORTED.

(C) IF NO SUCH VALUE HAS BEEN PROCLAIMED, OR IF THE VALUE SO PROCLAIMED VARIES BY 5 PERCENTUM OR MORE FROM A VALUE MEASURED BY THE BUYING RATE IN THE NEW YORK MARKET AT NOON ON THE DAY OF EXPORTATION, CONVERSION SHALL BE MADE AT A VALUE MEASURED BY SUCH BUYING RATE. FOR THE PURPOSES OF THIS SUBDIVISION SUCH BUYING RATE SHALL BE THE BUYING RATE FOR CABLE TRANSFERS PAYABLE IN THE FOREIGN CURRENCY SO TO BE CONVERTED; AND SHALL BE DETERMINED BY THE FEDERAL RESERVE BANK OF NEW YORK AND CERTIFIED DAILY TO THE SECRETARY OF THE TREASURY, WHO SHALL MAKE IT PUBLIC AT SUCH TIMES AND TO SUCH EXTENT AS HE DEEMS NECESSARY. IN ASCERTAINING SUCH BUYING RATE SUCH FEDERAL RESERVE BANK MAY IN ITS DISCRETION (1) TAKE INTO CONSIDERATION THE LAST ASCERTAINABLE TRANSACTIONS AND QUOTATIONS, WHETHER DIRECT OR THROUGH THE EXCHANGE OF OTHER CURRENCIES, AND (2) IF THERE IS NO MARKET BUYING RATE FOR SUCH CABLE TRANSFERS, CALCULATE SUCH RATE FROM ACTUAL TRANSACTIONS AND QUOTATIONS IN DEMAND OR TIME BILLS OF EXCHANGE.

THE PRIMARY USE OF SUCH CIRCULAR IS FOR ASCERTAINING THE VALUE OF GOODS IMPORTED INTO THE UNITED STATES, BUT BY USAGE IT HAS BECOME THE ESTABLISHED METHOD OF ASCERTAINING THE PAR VALUE OF THE STANDARD MONEY OF FOREIGN COUNTRIES. THESE STATEMENTS, AS TO SUCH VALUE, ARE ACCEPTED ONLY AS EVIDENCE AND ARE NOT CONCLUSIVE UPON THE ACCOUNTING OFFICERS. SEE 92 MS. COMP. DEC. 857. BY GENERAL INSTRUCTIONS NO. 788, OF JUNE 28, 1921, REFERRED TO IN YOUR LETTER, CONSULAR OFFICERS WERE INSTRUCTED THAT IN PREPARATION OF THEIR ACCOUNTS FOR SUBMISSION TO THE AUDITOR, THE CIRCULATING CURRENCY OF THE COUNTRIES IN WHICH THEY ARE LOCATED, RECEIVED BY THEM IN THEIR OFFICIAL CAPACITY, SHOULD BE CONVERTED TO ITS EQUIVALENT IN UNITED STATES DOLLARS AT THE VALUE STATED IN THE QUARTERLY CIRCULAR OF THE SECRETARY OF THE TREASURY REFERRED TO ABOVE, WITH THE PROVISION THAT WHERE SUCH CIRCULATING CURRENCY WAS A CURRENCY FOREIGN TO THE STANDARD CURRENCY OF THE COUNTRY, OR DEPRECIATED CURRENCY, THE AVERAGE VALUE OF SUCH CURRENCY IN UNITED STATES DOLLARS IN COMMERCIAL TRANSACTIONS ON THE LOCAL MARKETS MIGHT BE USED AS AN ACCOUNTING RATE AND THE DIFFERENCE BETWEEN SUCH ACCOUNTING RATE AND THE RATES AT WHICH SUCH FEES WERE COLLECTED SHOULD BE ENTERED IN THEIR ACCOUNTS EITHER AS "EXCESS OF FEES ON ACCOUNT OF CURRENCY" OR AS "DIFFERENCE DUE TO REDUCTION BY AVERAGE VALUE.

THESE DIRECTIONS APPEAR TO FULLY COVER THE MATTER WHERE A CONSUL IS LOCATED IN A COUNTRY WHERE THE STANDARD MONETARY UNIT IS GOLD, WHETHER THE CURRENCY IS ACTUALLY REDEEMABLE IN GOLD OR A FIAT CURRENCY THEORETICALLY BASED ON GOLD AS A STANDARD.

IN COUNTRIES SUCH AS CHINA, WHERE SILVER IS THE MONETARY STANDARD, A DIFFERENT SITUATION EXISTS. UNDER SECTION 1746, REVISED STATUTES, SUPRA, FEES ARE REQUIRED THERE AS ELSEWHERE TO BE COLLECTED IN UNITED STATES COIN OR ITS EQUIVALENT, AND AS IT IS APPARENT THAT THE EQUIVALENT VALUE OF UNITED STATES COIN IN CHINESE DOLLARS MUST AND DOES FLUCTUATE WITH THE RISE AND FALL OF THE MARKET FOR SILVER, THE VALUE OF SUCH DOLLARS CAN NOT BE BASED UPON A FIXED RATIO BETWEEN THE STANDARD COINS AS IS DONE WHERE BOTH COUNTRIES ARE ON A GOLD BASIS. NOR ARE THE DIRECTIONS AS TO COUNTRIES WHERE THE CURRENCY IS DEPRECIATED APPLICABLE, SINCE THE CHINESE SILVER DOLLAR IS NOT A DEPRECIATED MEDIUM OF EXCHANGE.

THE QUESTION THEREFORE ARISES AS TO THE PROPER METHOD OF DETERMINING ITS VALUE IN UNITED STATES MONEY.

PRIOR TO THE WORLD WAR LONDON WAS THE WORLD MARKET FOR SILVER, AND IN ARRIVING AT THE VALUE OF THE CHINESE DOLLAR IN UNITED STATES MONEY THE BULLION VALUE OF ITS SILVER CONTENT IN THE LONDON MARKET AS EXPRESSED IN POUNDS STERLING WAS CONVERTED INTO UNITED STATES MONEY AT THE PAR RATE OF EXCHANGE FOR THE POUND STERLING, AND THIS WAS THE VALUE FIXED BY THE SECRETARY OF THE TREASURY IN HIS QUARTERLY CIRCULAR.

DUE TO WAR CONDITIONS AND THE PASSAGE BY CONGRESS OF THE ACT OF APRIL 23, 1918, 40 STAT. 535, THE SO-CALLED PITTMAN ACT, THE WORLD MARKET FOR SILVER WAS SHIFTED TO NEW YORK AND THE VALUE OF THE CHINESE DOLLAR WAS BASED ON THE VALUE OF ITS SILVER CONTENT IN THE NEW YORK MARKET.

WITH THE RETURN OF PEACE AND THE COMPLETION OF PURCHASES OF SILVER BY THE SECRETARY OF THE TREASURY UNDER THE PROVISIONS OF THE PITTMAN ACT, LONDON AGAIN RESUMED ITS PLACE AS THE WORLD'S SILVER MARKET AND THE SECRETARY OF THE TREASURY, ON OCTOBER 1, 1923, RETURNED TO THE PRE WAR METHOD OF COMPUTING THE VALUE OF THE CHINESE DOLLAR.

IN THE MEANTIME THERE HAD BEEN RADICAL CHANGES IN EXCHANGE CONDITIONS BETWEEN LONDON AND NEW YORK. WHEREAS, PRIOR TO THE WAR THE RATE OF EXCHANGE, WITH SLIGHT VARIATIONS DUE TO CHANGING TRADE BALANCES, HAD BEEN APPROXIMATELY THAT FIXED AS PAR BY THE SECRETARY OF THE TREASURY, DURING THE WAR LONDON EXCHANGE HAD FALLEN AND HAS REMAINED BELOW THE PRE-WAR RATE.

IN FIXING THE VALUE OF THE CHINESE DOLLAR SUBSEQUENT TO OCTOBER 1, 1923, THE SECRETARY OF THE TREASURY HAS SIMPLY BASED HIS COMPUTATION ON THE PAR RATE OF EXCHANGE BETWEEN NEW YORK AND LONDON.

IT IS OBVIOUS THAT THE RATE SO ASCERTAINED DOES NOT REPRESENT THE TRUE VALUE IN UNITED STATES COIN OF THE CHINESE DOLLARS WHICH ARE RECEIVED AS CONSULAR FEES.

WITH THE ESTABLISHMENT OF THE FEDERAL RESERVE SYSTEM, AND AS A RESULT OF WAR CONDITIONS, NEW YORK BECAME A RIVAL OF LONDON AS A FINANCIAL CENTER AND A MARKET FOR FOREIGN BILLS OF EXCHANGE.

IT IS THEREFORE NO LONGER NECESSARY TO DETERMINE THE VALUE OF SUCH BILLS BY THE DOUBLE CONVERSION INTO STERLING AND THEN INTO THE MONEY OF THE COUNTRY ON WHICH SUCH BILL MAY BE DRAWN. THE CURRENT OR COMMERCIAL VALUE OF FOREIGN MONEY BASED UPON TRANSACTIONS IN THE NEW YORK MARKET IS DAILY REPORTED BY THE FEDERAL RESERVE BOARD AND THE AVERAGE OF SUCH VALUES IS PUBLISHED MONTHLY. SUCH REPORTS SHOW THE ACTUAL RATES AT WHICH THE FOREIGN MONEY COLLECTED BY THE CONSULS COULD BE CONVERTED INTO UNITED STATES COIN IN NEW YORK AND ARE THEREFORE AN ACCURATE METHOD OF DETERMINING THE AMOUNT OF FOREIGN MONEY THAT SHOULD BE COLLECTED BY A CONSULAR OFFICER TO COVER A FEE EXPRESSED IN UNITED STATES MONEY.

THE CONTEMPLATED CHANGE OF USING THE MONTHLY AVERAGE RATE PUBLISHED BY THE FEDERAL RESERVE BOARD INSTEAD OF THE QUARTERLY RATE PUBLISHED BY THE SECRETARY OF THE TREASURY IN ASCERTAINING THE VALUE OF THE CHINESE DOLLAR IS SATISFACTORY SUBJECT TO THAT THE RATE SO ASCERTAINED SHALL NOT BE CONCLUSIVE ON THE ACCOUNTING OFFICERS, BUT SHALL ONLY HAVE THE SAME WEIGHT AS EVIDENCE AS THAT HERETOFORE GIVEN THE RATE FIXED QUARTERLY BY THE SECRETARY OF THE TREASURY.