Foreign Relations of the United States: Diplomatic Papers, 1943, The British Commonwealth, Eastern Europe, the Far East, Volume III

Report of Interdepartmental Committee to President Roosevelt on Policy Decisions Relating to Dollar Position of Lend-Lease Countries⁶⁴

Washington, January 1, 1943.

A committee consisting of representatives of the Departments of State, Treasury and War, the Office of Lend-Lease Administration and the Board of Economic Warfare, undertook to consider the following four problems:

1. The appropriate level of the gold and dollar balances of the United Kingdom. Should these balances be allowed to increase further or should an effort be made to hold them at approximately the present level or should they be reduced?

2. The desirability of continuing lend-lease exports to South Africa in view of the present size and rate of increase of the gold holdings of that country.⁶⁵

3. The extent to which in the formulation of lend-lease policy for sterling area countries the gold and dollar position of each of these countries should be considered as separate from that of the United Kingdom.

4. In granting lend-lease assistance to countries outside the British Empire, should their holdings of gold and dollar balances be taken into consideration?

Recommendations made in this report are based on the recognition that the purpose of the Lend-Lease Act⁶⁶ is to provide our Allies with the goods and services that they need for the most vigorous prosecution of the war. They are based on the assumption that our arrangements with lend-lease countries should be so conducted as to maintain their gold and dollar balances at a level consistent with the above objective.

1. The United Kingdom

The United Kingdom held, as of November 30, 1942, an aggregate of $928 million of gold and dollar balances as follows:

	(In millions)
Gold	$702
Dollar balances	ߓ226
Total	$928

This total of $928 million represents an increase of $770 million from the low point of May 1941 and an increase of $430 million since January 1942. Whether or not these holdings will increase in the near future depends on a number of factors within the control of the United States Government such as the volume of lend-lease aid, the volume of United States purchases and the dollar expenditures of and for our troops. It also depends on certain factors largely beyond our control, of which an example is the proposed substantial payment by the United Kingdom to Canada.

Judging the total British position at this time, we conclude that the balances now held by United Kingdom are adequate. In this connection, it will be recalled that in the Spring of 1941 the British suggested that they should have a “minimum working balance of $600 million required to meet contingencies everywhere”.

Recommendation

It is recommended, in the light of present circumstances, that the United Kingdom’s gold and dollar balances should not be permitted to be less than about $600 million nor above about $1 billion.

2. The Union of South Africa

Gold holdings of South Africa have risen from approximately $220 million in September 1939 to more than $600 million in November 1942 In addition, South Africa has repurchased about $160 million of government securities formerly held in the United Kingdom, as well as substantial amounts of gold mining securities.

South Africa’s gold production is not expected to diminish greatly below the present all time high of $500 million per year. Even if gold production were to be drastically curtailed, South Africa would scarcely be hindered in her prosecution of the war because of any shortage of foreign exchange.

Lend-Lease exports to South Africa were unimportant until May 1942. Since then they have increased steadily. In October, 76 percent of United States exports to South Africa were on lend-lease account and 43 percent of the non-military items exported under lend-lease. These goods are lend-leased to Great Britain for the Union of South Africa, but they are shipped directly to the latter country. In the case of non-military goods, a large part is distributed by South African Government through normal commercial channels.

In view of the large gold balances of South Africa, lend-lease aid to that country, considered by itself, cannot be justified on foreign exchange rounds. It has been urged that political considerations make it important that lend-lease aid should be extended. There is, however, evidence to indicate that the Union Government is willing and eager to finance the purchase of war materials with its own resources.

Recommendations

a. It is recommended, as long as South African balances remain at or near their present high levels, lend-lease non-military exports to South Africa on a credit basis, either directly or indirectly through the British, be discontinued and that negotiations to this end be started at once.

b. It is further recommended that a Lend-Lease Agreement with South Africa be negotiated providing for lend-lease military aid to that country and reciprocal aid to the United States in the form of strategic materials.

3. The British Empire and its Parts

The present financial arrangements with the British appear to be rather inconsistent. When the British request that additional lend-lease aid be granted and that they be relieved of the necessity of making various dollar payments, they count only the United Kingdom’s gold and dollar balances and most of the dollar receipts of the sterling area as being available. They exclude the gold and dollar holdings of South Africa, Australia, New Zealand and India which together are at least as large as those of the United Kingdom. When, however, they compute the dollar expenditures which must be made, the British count not only the payments which the United Kingdom must make, but also the payments which their Dominions and Possessions, including South Africa must make.

It would seem that the correct procedure is to make lend-lease arrangements either with any part, or with the whole of the sterling area, and to vary the arrangements so as to fit the ability of the part, or the whole, to pay for goods and services. If Great Britain is to act for the whole Empire, the assets of all the members of the Empire should, it seems, be considered as well as their aggregate net need for foreign exchange. The same would hold for any part of the Empire for which Britain makes lend-lease arrangements.

Recommendation

It is recommended that the United States Treasury initiate and continue discussions with the Financial representatives of South Africa, Australia and New Zealand concerning their respective gold and dollar positions. Whether or not similar procedure should be adopted with British India rests upon the decision of the State Department concerning the expediency of such procedure with India at this time.

4. Non-British Countries Receiving Lend-Lease Aid

Thirty-six non-British Empire countries received $1.5–$2 billion of lend-lease assistance through November 1942. Among them are countries with substantial gold and dollar holdings.

Recommendation

It is recommended that consideration in the determination of lend-lease policy should be given to the gold and dollar position as well as to all of the relevant factors.

5. Continuing Review

In order to implement the policy decided upon concerning the appropriate amount of gold and dollar balances to be held by various countries receiving lend-lease aid, it is necessary to have a closer degree of coordinated effort by the various departments making decisions affecting the dollar position of these countries and to give consideration to the ways in which that policy shall be implemented. It is also necessary to be informed concerning the countries to which lend-lease aid is being granted, either directly or indirectly.

If the balance rises above the upper limit decided upon by the policy committee, the most feasible method of reducing the contribution of the United States seems to be the following:

(a) Reduction in lend-lease exports of non-military goods.

(b) Procurement of strategic materials and other non-military supplies as reciprocal aid.

(c) Receipt as reciprocal aid of sterling to finance expenditures of American Armed Forces abroad.

Recommendation

It is therefore recommended that the Cabinet group appoint a permanent subcommittee under the chairmanship of the Treasury charged with the responsibility of making recommendations to this Cabinet group with respect to the implementation of policies relating to the above problems, and that the Secretary of the Treasury take the necessary steps to obtain from each of the United Nations the information on their foreign exchange resources needed for the work of the subcommittee.

Cordell Hull

Secretary of State

Henry L. Stimson

Secretary of War

H. A. Wallace

Vice President

D. W. Bell

Acting Secretary of Treasury

E. R. Stettinius, Jr.

Lend-Lease Administrator

If you approve of these recommendations we shall be glad if you will so indicate below.

The White House
Approved:

Franklin D. Roosevelt

January 1, 1943

64. Copy obtained from the Records of the Foreign Economic Administrator in the National Archives.
65. See section entitled “Discussions between the United States and the Union of South Africa regarding conclusion of a reciprocal aid agreement and regarding war production in the Union of South Africa,” pp. 173 ff.
66. March 11, 1941; 55 Stat. 31.