841.51/8–1947: Telegram
The Acting Secretary of State to the Secretary of State at Petropolis1
us urgent
30. Humelsine to Carter.2 Eyes Only Secretary Marshall from Lovett. We were notified by British yesterday afternoon through [Page 62] Deputy Governor, Bank of England, flown in for purpose, that special British Cabinet meeting Sunday night reached decision to impose through Bank of England dollar exchange rationing in desperate effort halt what amounts to full scale flight from pound sterling. This reached rate of 237 million dollars in six days. All but 550 million dollars of loan has been notified for withdrawal. British proposed to make announcement their action at four o’clock Washington time today.
Obviously this announcement and action will be tremendous shock and will have widest repercussions, notably on economies non-sterling areas, including particularly certain South American countries. We pointed out that notice given us was completely inadequate permit any attempt to soften impact of this unilateral action and in late night session at Treasury which I attended at Snyder’s request we urged British postpone announcement and effective date for at least another twenty-four hour period. Answer on this due this morning.
While British claim their action is within broad intent of loan agreement and possibly covered by Section 8 Subdivision 2, we feel this may constitute breach of loan agreement and therefore suggested last night arrangement under which we in effect freeze the loan, preventing withdrawals beyond those presently notified for a period of one week’s grace during which lawyers can consider fundamental problems involved. In absence of such temporary arrangement which only postpones day of reckoning, contemplated British action represents desperate attempt Britain to go it alone regardless of consequences to herself and Europe.
Britain gives positive assurances that under exchange rationing there will be no defaults by her on existing dollar contracts with U.S. exporters. She admits however that it may require action approaching breach of bilateral trade agreements with sixteen other countries.
It begins to appear that Churchill’s3 charge that loan was largely “frittered away” is not far off mark. In interest of over-all recovery, we are and will continue to do utmost to keep Britain afloat but it is clear she must stop biting our hand.
Answers from London on controlling questions due this morning. Will report later on day’s developments. All above information is top secret.
Postscript: flash message received before dispatch British Treasury agrees further postponement twenty-four hours.
- Secretary Marshall was head of the U.S. Delegation to the Inter-American Conference for the Maintenance of Continental Peace and Security at Quintandinha, near Petropolis, Brazil, between August 15 and September 2, 1947.↩
- Carlisle H. Humelsine was Director of the Executive Secretariat, Office of the Secretary of State; Marshall S. Carter was Special Assistant to the Secretary of State.↩
- Winston S. Churchill, farmer Prime Minister.↩