Office of the Historian

841.51/9–2445

Memorandum by the Assistant Secretary of State (Clayton) to President Truman

Washington, September 24, 1945.

Subject: Progress of U.S.–U.K. Negotiations

1)
During last week considerable progress was made in the discussion of the overall financial problem of the British. The British put forward the following informal proposal as a basis for further consideration:50 [Page 133]
a)
Exchange controls on current transactions would be lifted on January 1, 1947, making all current sterling balances freely convertible, and liquidating the sterling area dollar pool. The British would thus waive the Bretton Woods transitional period and as of January 1, 1947 embark on the full post-war exchange arrangements.51
b)
Exchange arrangements would be progressively liberalized during the next 15 months.
c)
The blocked sterling system would be terminated on December 31, 1946 and sterling obligations to the sterling area (estimated then at $12 billion) would be handled as follows:
i.
$4 billion would be written off.
ii.
Of the remaining $8 billion, 10% or $800 million would be made freely convertible for any current purposes.
iii.
The remaining $7.2 billion would be funded at no interest, to be paid off in 50 annual instalments of 2% beginning after five years.
d)
Sterling obligations in South America would be paid off by sale of British investments in those countries. Obligations to Norway, Greece, and other European allies and neutrals would be paid off partly by construction of ships for Norway and Greece (the obligations consist in considerable measure of Lloyd’s ship insurance) and partly in goods or dollars and gold which such nations urgently need. The Portuguese obligation is being funded at rather long term. Dollar obligations to the RFC52 will be worked off by gradual realization of the collateral. Dollar obligations to Canada, it is hoped, may be cancelled by Canada.
e)
In order to meet the adverse balance of trade during the three to five year period of British recovery, the British request that the United States establish a line of credit of $5 billion.53 Britain expects to obtain credits of $500 million to $1 billion from Canada, Sweden, and possibly other countries. Britain would hope to use considerably less than the total dollars thus at her disposal, but believes that a substantial line must be available in order to engender confidence in the pound. The British made no suggestions as to terms.
f)
In addition to these amounts, Britain will owe any net figure arising out of war liquidation, lend-lease pipeline, inventory, surplus property, etc.
2)
Mr. Crowley has arranged an interim plan for handling the lend-lease pipeline and inventory pending conclusion of overall arrangements.
3)
Preliminary discussions of surplus disposal continue while the Army is ascertaining what goods will be in surplus.
4)
Commercial policy discussion will begin at the end of this week when a strong British trade delegation will arrive.
5)
We are asking the Dominions to send representatives for parallel discussions.
6)
I am encouraged by the progress of the discussions and the reasonable attitude of the British. Their proposal with respect to the blocked sterling obligations is generally regarded as satisfactory and we are going into its details. The Financial Committee headed by Secretary Vinson is considering the overall financial request.
W. L. Clayton
  1. Most of this informal proposal had been set forth by Lord Keynes at the second meeting of the U.S.–U.K. Financial Committee on September 20. The first meeting, on the preceding day, dealt with a general analysis by Lord Keynes of possible alternatives open to the United Kingdom in regard to external financial affairs (611.4131/5–146, Folder 5).↩
  2. According to section 4 of article XIV of the Bretton Woods Agreement, it was expected that the member nations would have removed currency restrictions within 5 years from the coming into force of the Agreement; for text, see Proceedings and Documents of the United Nations Monetary and Financial Conference, vol. i, pp. 965, 966.↩
  3. Reconstruction Finance Corporation.↩
  4. At the second meeting of the Combined U.S.–U.K. Financial Committee, September 20, Lord Keynes had indicated that $5 billion would be a satisfactory figure for the credit, although suggesting that ideally $6 billion might more adequately cover Britain’s expected cumulative adverse balance over the next 3 to 5 years (611.4131/5–146, Folder 2). This figure did not include the sum for lend-lease settlement; see p. 162.↩