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

611.4131/5–146

United States Draft Memorandum of Understanding on Financial Matters²⁸

[Washington,] November 30, 1945.

(This is designed to serve as the basis for the more detailed contract, financial agreement and other documents which may be agreed.)

1. Amount of the Line of Credit

(i) The Government of the United States will extend to the Government of the United Kingdom a line of credit of . . … billion.

(ii) This line of credit will be available until December 31, 1951.

2. Purpose of the Credit.

The purpose of the credit shall be to facilitate purchases by the United Kingdom of goods and services from the United States, to assist the United Kingdom to meet transitional postwar deficits in her current balance of payments, to help the United Kingdom to maintain adequate reserves of gold and dollars and to assist the United Kingdom to assume the obligations of multilateral trade, as defined in this and other agreements.

3. Amortization and Interest

(i) The amount of the credit outstanding on December 31, 1951 shall be repaid with interest in 50 annual installments, beginning on December 31, 1951, subject to the provisions of (4) below.

(ii) The rate of interest shall be 2 percent per annum. For the year 1951 interest shall be computed on the amount outstanding on December 31, 1951, and for each year thereafter, interest shall be computed on the amount outstanding on January 1, subject to the provisions of (4) below.

(iii) The 50 annual installments of principal repayments and interest shall be equal, amounting to $31.8 million for each $1 billion outstanding on December 31, 1951. Each installment shall consist of the full amount of the interest due and the remainder of the installment shall be the principal to be repaid in that year.

4. Waiver of Interest Payments

In any year in which the Government of the United Kingdom requests the Government of the United States to waive the amount of the interest due in that year, the Government of the United States will grant the waiver if:

(a) The Government of the U.K. finds that a waiver is necessary in view of the present and prospective conditions of international exchange and the level of its gold and foreign exchange reserves and

(b) As certified by the International Monetary Fund, the income of the U.K. from home-produced exports plus its net income from invisible current transactions in its balance of payments (as defined in Article XIV (i) of the Articles of Agreement of the International Monetary Fund) was on the average over the five preceding calendar years less than the amount of U.K. imports during 1936–8, fixed at £866 million, as such figures may be adjusted for changes in the price level of these imports. Any amount in excess of $175 million released or paid or used in any year on account of sterling balances accumulated in the hands of overseas governments, monetary authorities and banks before the date of this Agreement, shall be regarded as a capital transaction and therefore shall not be included in the above calculation of the net income from invisible current transactions for that year. If waiver is requested for an interest payment prior to that due in 1955, the average income shall be computed for the calendar years from 1950 through the year preceding the given year.

5. Position of this Credit in Relation to Other Obligations

(i) It is understood that any amounts required to discharge obligations of the United Kingdom to third countries outstanding on the date of this Agreement will be found from resources other than this line of credit.

(ii) The Government of the United Kingdom will not arrange any long-term loans from governments within the British Commonwealth after the date of this Agreement and before the end of 1951 on terms more favorable to the lender than the terms of this line of credit.

(iii) Waiver of interest will not be requested or allowed under 4 above in any year unless the aggregate of the releases, payments or other uses in that year of sterling balances accumulated in the hands of overseas governments, monetary authorities and banks before the date of this Agreement, are reduced proportionately, and unless interest payments on loans referred to in (ii) above are waived. The proportionate reduction of the releases, payments or other uses of sterling balances shall be calculated on the basis of the aggregate released in the most recent year in which waiver of interest was not requested.

(iv) The application of the principles set forth in this section shall be subject of full consultation between the two governments as occasion may arise.

6. Sterling Area Exchange Arrangements

The Government of the United Kingdom will complete arrangements as early as practicable and in any case not later than the end of 1946 under which, immediately after the completion of such arrangements, the sterling receipts from current transactions of all sterling area countries, apart from any receipts arising out of military expenditure by the United Kingdom prior to December 31, 1948, which it may be agreed to treat on the same basis as the balances accumulated during the war will be freely available for current transactions in any currency area without discrimination; with the result that any discrimination arising from the so-called sterling area dollar pool will be entirely removed and that each member of the sterling area will have its current sterling and dollar receipts at its free disposition for current transactions anywhere.

7. Other Exchange Arrangements

(i) The Government of the U.K. agrees that after the date of this Agreement it will apply no exchange restrictions, except in accordance with the Articles of Agreement of the International Monetary Fund, which will restrict payments or transfers in respect of products permitted to be imported into the U.K. from the U.S., or of other current transactions between the two countries as defined in Article XIX(i) of the said Articles or on the use of sterling balances in the hands of U.S. residents arising out of current transactions; and in pursuance of the policy of reducing restrictions on trade between the two countries at the earliest possible date it agrees not to avail itself, in respect of the transactions referred to above, of Article XIV of the Articles of Agreement of the International Monetary Fund.

(ii) The Governments of the U.S. and the U.K. agree that not later than one year after the effective date of this agreement, unless a later date is agreed upon after consultation, they will impose no restrictions on payments and transfers for current international transactions as defined in the Articles of Agreement of the International Monetary Fund. The obligations of this paragraph shall not apply:

(a) to balances of third countries and their nationals accumulated before this paragraph becomes effective;

(b) to restrictions imposed with the approval of the International Monetary Fund (but the U.K. and the U.S. agree that they will not continue to invoke the provisions of Article XIV, Section 2 of the Articles of Agreement of the International Monetary Fund after this paragraph becomes effective); or

(c) to restrictions imposed in connection with measures designed to uncover and dispose of assets of Germany and Japan.

(iii) The obligations assumed by the Governments of the U.S. and the U.K. under this section and section 8 are also assumed by all of their respective colonies, overseas territories, all territories under their protection, suzerainty, or authority and all territories in respect of which they exercise a mandate.

8. Import Arrangements

If the Government of either country imposes or maintains quantitative import restrictions, such restrictions shall be administered on a basis which does not discriminate against imports from the other country in respect of any product; provided that this undertaking shall not apply (a) in cases in which its application would have the effect of preventing the country imposing such restrictions from utilizing, for the purchase of needed imports, inconvertible currencies accumulated up to December 31, 1946, or (b) in cases in which there may be special necessity for the country imposing such restrictions to assist, by measures not involving a substantial departure from the general rule of non-discrimination, a country whose economy has been disrupted by war. The provisions of this paragraph shall become effective not later than one year after the effective date of this Agreement unless a later date is agreed upon after consultation.

9. Accumulated Sterling Balances

(i) The Government of the U.K. has communicated its intentions to the Government of the U.S. as follows:

The Government of the United Kingdom intends to make an early settlement, varying according to the circumstances of each case, of the sterling balances accumulated by sterling area and other countries prior to such settlement (together with any future receipts arising out of military expenditure by the U.K. which it may be agreed to treat on the same basis). The settlements with the sterling area countries will be on the basis of dividing these accumulated balances into three categories, (a) balances to be released at once and convertible into any currency for current transactions, (b) balances to be similarly released by installments over a period of years beginning in 1951, and (c) balances to be written off as a contribution to the settlement of war and postwar indebtedness and in recognition of the benefits which the countries concerned might be expected to gain from such a settlement.

(ii) In view of the importance of the interest of the United States in the method of dealing with sterling balances from the standpoint of their relation to non-discriminatory trade policies, and in consideration of the fact that an important purpose of the present credit is to promote the development of multilateral trade and facilitate its early resumption on a non-discriminatory basis, the Government of the United Kingdom agrees that, not later than one year after the effective date of this Agreement unless a later date is agreed upon after consultation, any sterling balances available for payments, whether pursuant to settlement of [or] otherwise, will be available for use in any currency area without discrimination.

10. Consultation on Agreement

Either Government shall be entitled to approach the other for a reconsideration of any of the provisions of this Agreement, if in its opinion the prevailing conditions of international exchange justify such reconsideration, with a view to agreeing upon modifications for presentation to their respective legislatures.

28. Presented at the sixth meeting of the U.S.–U.K. Combined Finance Committee on December 2 at 10:30 a.m. For summary of this and the seventh meeting held at 3:30 p.m., on the same date, see telegram 10476, December 3, to London, p. 185.