Foreign Relations of the United States, Diplomatic Papers, 1945, The British Commonwealth, The Far East, Volume VI

611.4131/5–146

Memorandum by the Executive Committee on Economic Foreign Policy

[Extract]

[Washington,] September 7, 1945.

Sterling Exchange and Blocked Balances

. . . . . . .

Conclusion

The Committee favors the principle set forth in plans III and IV that blocked sterling balances should be funded.²⁸ The Committee also favors the principle, emphasized in plan IV, of making some part of the dollar exchange provided by a dollar credit²⁹ to the United Kingdom available for use by that country to facilitate the maximum reduction of its foreign sterling indebtedness. Properly devised, such a plan would not only assist in the restoration of British international equilibrium, but would also minimize the handicap, created by blocked balances, to United States exports to sterling creditors.

In recommending a prompt solution of the problem of blocked sterling accounts and the extension of a dollar credit by the United States for that purpose, the Committee recognizes that this subject may require the approval of Congress. The following considerations may be useful in presenting the subject to Congressional leaders:

1. If the United Kingdom is forced to maintain rigid exchange controls, other countries in the sterling area and in western Europe will also be obliged to maintain them. Such action will give a pronounced impetus to state control of foreign trade in a large area of the world. A substantial dollar credit to the United Kingdom, therefore, will help to preserve free enterprise, especially in foreign trade.

2. Countries which would be directly affected by the action of the United Kingdom regarding exchange controls have customarily taken from one-third to one-half of all United States exports. A dollar credit to the United Kingdom will help to open this market to United States exports by removing barriers to United States trade.

3. The removal of these barriers will permit the United States to expand its foreign trade.

4. Should a credit be extended to the United Kingdom, most of it would be utilized to make purchases in the United States.

28. This memorandum had taken up four possible solutions to the problem of sterling exchange: I. Devaluation of the pound sterling; II. Transitional financing, at least partly through American credits; III. Transitional financing plus funding of the blocked sterling balances; IV. Transitional financing plus partial funding plus partial liquidation of blocked balances.
29. No mention as to the size of a proposed credit was made in the memorandum; it did, however, recommend the extension of “a liberal, long-term dollar credit to the United Kingdom to assist in the solution of its transitional problems”, on the grounds that this would aid the expansion of American foreign trade.