840.50/1–1245: Telegram

The Ambassador in the United Kingdom (Winant) to the Secretary of State

433. Hawkins, Steere and Penrose had another conversation yesterday with Liesching, Eady, Robbins and Shackle. The subject of discussion was exchange controls in relation to a multilateral commercial convention.

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The UK attitude on this subject is dominated by the change in their debtor-creditor position during the war and particularly by the amount of blocked sterling which has accumulated. Their concern on this subject has deepened since the completion of the calculations which were embodied in the statement of requirements for Stage II of Lend-Lease, particularly.23

Robbins, with the concurrence of his colleagues, said there would be the greatest difficulty in finding acceptance in UK of anything that went beyond Bretton Woods in regard to the transition period.24 This would apply to any provision in a commercial convention that would shorten the transition period and any that would prevent an increase in blocked balances. Eady considers that there should be no reference to blocked balances in a commercial convention and that so far as exchange is concerned the position in the monetary fund agreement should be adhered to.

The UK officials discussed the problem of blocked balances in detail. They stressed not only the magnitude of the balances, but also the fact that a large part of the balances are owed to creditor countries which are in a weak economic position and which will, therefore, wish to obtain goods against at least part of their sterling as soon as possible after the war. In this respect the UK is in a markedly different position from what it was at the end of the last war.

Pointing to the huge deficit which the UK will face on both current and capital account the officials emphasize that when Lend-Lease stops it will be extraordinarily difficult to balance their current account let alone make a contribution towards the reduction of their indebtedness. When in urgent need of imports in the early post-war years they might [be] obliged to import goods against temporarily blocked sterling from countries willing to accept such an arrangement. They add that, of course, in practice there is a substantial limit to the extent to which other countries would agree to export on such terms.

Robbins, discussing modes of unblocking, said that if all unblocking was done “without strings attached” the rate of unblocking would have to be much slower than otherwise. Their economically poor creditors, however, would want to use their balances as soon as possible and would press for the form of unblocking that would enable them to make the most use of them.

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In response to questions UK officials expressed unwillingness to resort to direct loans either to facilitate unblocking or even to finance essential imports any further than might be temporarily required by inability to obtain them by alternative means. The viewpoint they expressed on this subject was substantially identical with that which we have noticed in Annex A, especially paragraphs 4 and 5 in their document “British Requirements for the First Year of Stage II”.

Shackle expressed the view that too rigid an application of the rule of nondiscrimination in exchange in the transition period might tend to contract trade rather than facilitate recovery. As an example, he said that it might prevent UK from obtaining oranges from South America without enabling them to obtain them from California instead. He thinks the best plan would be to lay down as a general rule that there should not be more discrimination than is unavoidable during the transition and to provide for consultation with the countries concerned in all cases.

In brief, the position of UK officials is that the commercial policy convention should contain no provisions regarding exchange which go beyond what is contained in the monetary fund agreement.

The UK officials said they would be quite willing to enter into detailed discussions with us at a suitable time on ways and means of reducing discrimination to a minimum in connection with the difficulties of their financial position generally.

  1. This statement, “British Requirements for the First Year of Stage II”, not printed. This statement was presented in October 1944 by the United Kingdom delegation during the discussions on Stage II of lend-lease then taking place in Washington. Stage II (also called Phase II) usually referred to the period of lend-lease between the defeat of Germany and the defeat of Japan. For documentation on this subject, see Foreign Relations, 1944, vol. iii, pp. 31 ff.
  2. See Proceedings and Documents of the United Nations Monetary and Financial Conference, pp. 965–966.