Memorandum of Conversation, by the Under Secretary of State (Stettinius)

1) Sir John Anderson stated that in spite of the enormous volume of Lend-Lease assistance, the British overseas financial position has continued to deteriorate throughout the war. He gave me the following annual figures on the loss of British overseas assets and increase of overseas liabilities:

1940 $3,024,000,000
1941 3,188,000,000
1942 2,540,000,000
1943 2,620,000,000

He stated that the estimate for 1944 is $2,800,000,000.

Sir John Anderson stated that from 1939 to the end of 1944 the aggregate British loss of overseas assets and increase in overseas liabilities will exceed 15 billion dollars. Part of this, of course, has been met by the outright sale of assets. It is probable, however, that the external liabilities of the United Kingdom at the end of 1944 will be in the neighborhood of 12 billion dollars. (The British have parted outright with more than 3 billion dollars since the beginning of the war, Anderson explained, but they entered the war with certain external liabilities against which their reserves at that time were held.)

2) From the middle of 1941, when British gold and dollar balances were almost exhausted, they had built up balances in the amount of 1.3 billion dollars by the end of 1943. Sir John Anderson estimates that by the end of 1944 these balances will have risen to 1.6 billion dollars, or about one-seventh of the probable British liabilities at that date.

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Sir John Anderson emphasized that these gold and dollar balances represent the United Kingdom’s only quick assets against their external liabilities and that they are in fact the central reserves of the whole sterling area. He pointed out that the British are under certain obligations to furnish dollars from these balances when they are needed by the other members of the sterling area.

3) Sir John Anderson stated that the improvement in Britain’s dollar balance during 1944 would be almost entirely due to the large expenditures of United States troops within the Empire. In 1944, the British expect to receive $585,000,000 from this source in the United Kingdom and $475,000,000 in the rest of the sterling area, making a total of over a billion dollars. As a result of the recent reductions in Lend-Lease and the increases in Reverse Lend-Lease, however, it is estimated that the net increase in the British gold and dollar balances will be only $300,000,000.

4) The element in this situation which is most disturbing, Sir John Anderson stated, is the fact that the receipts from United States troops, particularly those in the British Isles, constitute only a temporary source of income. The British fear that after the end of hostilities in Europe their balances will fall throughout the period of the Pacific war, even if Lend-Lease is maintained at its present level. A further diminution in the volume of Lend-Lease after the end of the war in Europe, Anderson stated, would mean that British balances would fall rapidly during the Japanese war while their external liabilities continue to grow.

5) Sir John Anderson estimates that by the end of 1945 or shortly thereafter, British gold and dollar reserves will be down to about one billion dollars and their overseas liabilities will have risen to about 15 billion, which will mean that the ratio of quick assets to external liabilities will have fallen from one-seventh at the end of 1944 to one-fifteenth at the end of 1945.

6) Sir John Anderson asked me about American opinion on this problem. I explained that when the “farmer from Kansas” learns that the British had 3 billion dollars in 1939, that they have received 10 billion or more of goods under Lend-Lease, and that they are beginning to accumulate gold and dollars again, he is going to think that the British must now be very rich. Anderson pointed out that, of course, assets without reference to liabilities are meaningless. “As I have told you,” he stated, “we will probably come out of this war with debts of fifteen billion dollars and assets of only one billion.”

[On May 12, 1944, Under Secretary of State Stettinius presented to the Secretary the report of his Mission to London, April 7–29, 1944; [Page 50] see pages 1 ff. For his discussion of Great Britain’s fiscal position and the termination of Lend-Lease, see page 27.]