841.5151/2002
Memorandum by the Assistant Secretary of State (Acheson)60
United States Policy on Limitations on British Gold and Dollar Balances
1. The Facts.
In January, 1943 the President approved a recommendation that, in the light of existing conditions, the British gold and dollar balances should be between 600 million and 1 billion dollars. This decision was made without British agreement.
Recently British reserves have exceeded 1 billion dollars; after certain deductions they now stand at 1 billion 200 million, and may be expected to increase at the rate of about 600 million a year. The provision as reciprocal aid of raw materials purchased by the United States Government would decrease this rate by approximately 200 million a year. It should be observed that the increase in British dollar balances is due entirely to the pay of American troops within the Sterling Area.
British short term liabilities, against which the gold and dollar balances are the only reserves, now stand at over 7 billion dollars. They are increasing, largely due to heavy cash expenditures in the Middle East and India, at a rate of about 3 billions a year.
2. The Treasury Proposal.
In a draft letter from the Secretary of the Treasury to Mr. Leo Crowley circulated by Mr. Harry White to the members of the Cabinet [Page 99] sub-committee on the dollar position of lend-lease countries, it is recommended:
“that immediate steps be taken to reduce the amount of civilian goods being lend-leased to the British Government by an amount sufficient to bring Britain’s gold and dollar holdings to a level consistent with the January 1 decision”.
The proposed reduction is estimated at 200 to 300 million dollars.
3. British Argument.
The British contend that the increase in their gold and dollar balances does not reflect an improvement of their financial position. On the contrary, their net overseas position is deteriorating at a rate of about $2.5 billion a year. Some growth of their liquid reserves is, they argue, indispensable to the delicate system by which they finance the war on credit through a large part of the world. To allow such growth could not legitimately be criticized.
4. Comment on British Argument.
The British argument appears to be valid. Certainly it is unreasonable to set a hard and fast limit on assets without regard to liabilities. If a man had held $100 in cash against $500 in debts, one would not argue that his financial position had improved when he holds $500 in cash against $5,000 in debts.
The Soviet is believed to hold gold reserves nearly double the total British gold and dollar holdings, and to have no significant liabilities against them. Yet we have not therefore proposed to reduce lend-lease aid to the Soviet Union.
FEA has already informed the British that certain industrial equipment, the post-war value of which would be significant, would no longer be furnished under straight lend-lease after November 15.61 This would further reduce the probable rate of increase of their dollar holdings by about $50 million annually and should eliminate most of the items subject to criticism.
5. Recommendation.
It is recommended that the present policy, restricting British gold and dollar resources under a rigid ceiling, be abandoned in favor of a policy which will permit those resources to increase in a given ratio to the short term liabilities against them. It may be that the existing ratio (about 1:6 or 7) will be adequate.
[Page 100]A statement setting forth the facts leading to this policy should be prepared for transmission to Congress or the appropriate Congressional committees. This would have to be framed so as not to endanger British credit in areas holding large sterling balances.
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Marginal notation reads: “At Mr. Stettinius’ request I told Mr. Acheson to handle this matter for the Department at the 11:45 Meeting this morning with Secretary Morgenthau and that Mr. Stettinius would back him up on it because they both see eye to eye on the subject. R[obert] J L[ynch]”.
In a memorandum of November 16, 1943, to the Secretary of State, Mr. Stettinius stated that Mr. Acheson’s memorandum of November 2 was read at the Interdepartmental meeting at the Treasury Department (841.5151/2001). No record of this meeting has been found in Department files; inquiry at the Treasury Department has indicated no record of this meeting in the Treasury Department files.
↩ - According to a memorandum of November 17, 1943, by Mr. Quincy Wright, Consultant to the Foreign Economic Administration, machine tools were the principal items removed from the lend-lease list at this time (841.5151/2013); see Hall, North American Supply, pp. 280, 406, 438, and 448–449.↩