Memorandum by the Secretary of State to President Truman


Subject: Reported Impending British Dollar Crisis

The British Chargé d’Affaires has left with me an Aide-Mémoire expressing his government’s concern at the rapid depletion of its dollar resources. The Aide-Mémoire stated that at the present rate of depletion the balance remaining from the $3–¾ billion U.S. loan will be exhausted by fall. There will then be left only basic monetary reserves, which at the current rate of loss would not last beyond April or May of 1948.

The British question whether in these straitened circumstances they could contribute leadership for a European recovery program. Moreover, they feel compelled to consider: (a) reducing their financial commitments in Germany and elsewhere, (b) further curtailing imports and (c) withdrawing from multilateralism in international trade.

Background. The British have now drawn $2–¾ billion, leaving a balance of only $1 billion. This situation has arisen in part because British purchases abroad have been made at prices higher than when the loan was made. The rate of world recovery has been slower than anticipated, with the result that Britain has been forced to buy largely in the western hemisphere. A contributing factor has been the recent undertaking by the United Kingdom to make sterling convertible as required by the Anglo-American Financial Agreement. Britain’s own failure to muster the full force of its productive resources has retarded the expansion of exports.

Comment: Ambassador Douglas comments that the British position is critical. He believes that “we run the serious risk of losing most of Western Europe if the crisis here develops as it now seems almost certain to develop.”1 I agree that the possible developments are most disturbing.

[Page 49]

We have talked to Treasury on this matter. They will confer with the British to determine more precisely what the situation is and what the British themselves can do. We will keep you advised of developments.

G. C. Marshall
  1. Evidence of mounting economic anxiety was reported by the Embassy in London in telegram 4142, July 30: “Daily headlines, articles, editorials, speeches, announcements, and meetings on Britain’s economic crisis during past two weeks are driving home the realities which face British when loan is exhausted and is producing a state of mounting anxiety and tension here, which will likely reach crescendo middle next week when economic situation is to be debated in Commons.” (841.50/7–3047)