841.51/8–1847: Telegram
The Ambassador in the United Kingdom ( Douglas ) to the Secretary of State
secret
niact
niact
London
, August
18, 1947—3 p. m.
4459. For Lovett and Snyder. Bevin asked me to call on him at his office this morning. He explained to me the crisis that had developed during the last week and the decision in principle which the Cabinet had made at its extraordinary meeting yesterday.
- 1.
- During the five days, August 10–15, there had occurred a drain on British dollar resources in the amount of $175,900,000. This figure compares with an average weekly drain during the proceeding six weeks of $115,000,000 and with an average weekly drain during the second quarter of this year of $77,000,000.
- 2.
- The Bank of England and the Treasury estimate the very minimum future drain at $175,000,000 each week and a probable maximum drain of about $300,000,000 each week.
- 3.
- The British calculate that on this basis, the remaining $700,000,000 of the American loan may last about two weeks.
- 4.
- The run on sterling that commenced prior to July 15 has therefore now assumed huge proportions. Much of the drain is on current account, a substantial part is on capital account, but, whatever the cause, the drain is very heavy.
- 5.
- If, Bevin said, the issue were purely a monetary and financial one, he would oppose taking any steps. He felt, however, that it was not purely a financial and monetary one, that a break in sterling would necessarily lead to bilateral arrangements, shrinking of trade at the very time they were attempting to expand trade. That it would have [Page 61] profound effect, adversely, on the attitude of both France and Italy, with the possibility of political crisis there. A break in sterling probably would, he felt, impair if not destroy all the efforts that had been made over the course of the last two years in the political field and would create so much confusion that even the present position might never be recovered. Certainly he felt that it would aggravate aggressive action throughout Europe and particularly in the danger spots by the Soviet.
- 6.
- Because of this broad political question which Bevin felt is of such significance to US and to Britain, the Cabinet had decided to take unilateral action (Embtel 4382, August 131) to protect sterling. He was particularly anxious that this be not construed in the US as a repudiation of any commitment made or of the terms of the loan agreement and he pressed the view that this sort of action was taken purely as a stop-gap to hold the status quo while we with the UK could survey all the facts and review the whole situation. I am confident that he was expressing an honest and sincere view of the British Government when he made this statement.
- 7.
- Bevin was not able to give me officially the precise measures which the British Government would take. They were still in the formulation period. He hoped, however, to be able to get a communication to Sir Wilfred Eady for the meeting with John Snyder this afternoon in Washington at 3 o’clock.2 This statement would include precise measures which Britain proposed to take.
- 8.
- At the risk of reiteration, Bevin expresses the deep hope that you will not construe this action as a violation or repudiation of the commitments but rather as a purely stop-gap measure which he believed absolutely essential be taken within the next 48 hours to prevent the sort of catastrophe which he outlined.
Douglas