Memorandum of Conversation, by the Assistant Secretary of State (Berle)

Participants: Sir Frederick Phillips;
Mr. William Taylor of Treasury;
Mr. A. A. Berle, Jr.

Sir Frederick Phillips came in at my request. I handed him the list of questions on Lord Keynes’ “Proposals for an International Clearing Union.” (Copy of list attached.)

[Page 225]

We had some general conversation about the Keynes’ plan. I said that, as Sir Frederick realized, certain main points were obvious.

Britain and probably other countries would need goods and were faced with adverse balances. There were only two ways as yet worked out of settling these balances—gold, if gold is acceptable, and otherwise, goods. Lord Keynes’ proposals really came to giving to the proposed Clearing Union a method of creating money which could be used in settling these balances. In practice this would probably mean that we would acquire considerable amounts of this new money which could be availed of only by taking goods.

Sir Frederick objected, saying that great use of it was for foreign lending.

I said we realized this; so that what it really came to was a method by which American, and possibly other goods, could be made available to certain countries, notably Britain, on what was in fact though not in form a credit arrangement, terms of the credit beings of course, the degree of usefulness of this international currency.

I said that this raised squarely a problem which the American Government would have to face, and in facing it would have to take account of Congressional opinion and public sentiment.

I said that I thought there was a growing realization here that arrangements would have to be made, certainly during the immediate post-war period, to enable other commercial countries to get back on their feet and start work. This period might well synchronize with a period when the United States was seeking activity for its plants and employment for its people. We were in process of considering, carefully, the kind of measures which could be wholeheartedly supported by this Government, especially in view of its well known position that commerce should be as widely open as practicable.

A. A. B[erle], Jr.

Questions on Lord Keynes’ Proposals for an International Clearing Union

Is it assumed that exchange rates between members of the Union would fluctuate within gold points or their equivalent and that foreign exchange obtained through bancor facilities would be sold only at such gold points?
If transfer is to be at a fixed rate may not two rates of exchange develop between member countries unless the governments are prepared to take active steps through a stabilization fund or other agency to control the rates?
Is it contemplated that transfers of bancor could take place other than by direct transfer between central banks or treasuries? (a) [Page 226] Specifically, will the new “instrument of international currency” be utilized by means of negotiable drafts in bancor on the Clearing Union or by entries on the books of the Union? (b) If the first, by whom would it be sold and bought in individual countries? Specifically, would transactions in bancor be a monopoly of the central bank and/or the Treasury, or would it be generally negotiable like an ordinary bill of exchange? (c) Would the bancor be an instrument of payment between member and non-member countries? If so, how would this operate?
In what currency and under what exchange rate regulations would non-members keep “credit clearing accounts” with the Union and what would be the advantage to them to do so, since they cannot borrow from the Union?
How under the plan could the quantum of international currency be contracted to reduce “effective world demand”, mentioned in paragraph 1 (c) of the Proposals?
What provision is there for preventing the use of bancor quotas to meet foreign obligations where there is no adverse balance of payments on current account? What could prevent countries with weak currencies from quickly exhausting their quotas should they wish to acquire strong currencies?
What is the contemplated order of magnitude of total bancor quotas? Are we correct in understanding that within such amounts a country could do nothing to limit the call of the Clearing Union for its currency? What is the maximum amount of U. S. dollars which the United States might be obligated to provide in return for bancors during the first five years of operation?
What disposable assets would the Union hold to assure liquidation of bancor credits in the event of dissolution of the Union or in the event of war? In the event that any country wishes to withdraw, what specific steps could it take to liquidate without loss the bancor that it might have accumulated?
Does the proposal envisage that the British Commonwealth as a whole is to have one representative on the Board and one quota, or would each of the dominions also have a separate representative and a separate quota? If the Commonwealth is to be treated as a unit, is it thought that intra-commonwealth trade is to be treated as foreign trade for the purpose of determining the quota?
Is it not likely that those countries likely to develop large creditor accounts with the Clearing Union will be in a minority so far as voting strength and control over policies are concerned?
Does the drawing of a distinction between a few founder states and other members run counter to the general objective of securing international collaboration?