Foreign Relations of the United States, 1947, The British Commonwealth; Europe, Volume III

841.51/8–2047: Telegram

The Acting Secretary of State to the Secretary of State at Petropolis

top secret
niact

Washington, August 20, 1947—2 p. m.

46. Humelsine to Carter Eyes Only Secretary Marshall from Lovett. Meetings with Treas yesterday on Brit financial agreement and proposed Brit action to impose through Bank of Eng dollar exchange rationing as of 4 p.m. Wash time today, highlighted by fol:

(1) Treas disposition to strain interpretation financial agreement in order permit Brit to stop convertibility pounds to dollars for countries other than those in sterling area and United States. While specific proposal advanced by Treas and acceptable to Sec of Treas was ingenious, it nevertheless opened us to serious Congressional charge that our action would be in effect a modification of agreement which under terms agreement can only be done after consultation between govts and submission modifications to respective legislatures.

(2) Our basic position was that we cannot risk approving any Brit action as falling within terms of agreement which would, however, in effect really constitute breach of agreement. While agreement does not provide for any penalties for breach, nevertheless it is clear that a substantial breach by Brit would require us to stop performance on our part contract by prohibiting the Brit from making any further withdrawals from balance of fund remaining under loan. While agreement does provide for Brit suspending convertibility in exceptional cases, it is clear from legislative history and particularly from Clayton’s testimony that such proviso was intended to be applied only on a case-by-case basis and on proof by Brit to our satisfaction that financial relations between Britain and particular country for which exception requested require suspension convertibility. However, to permit an across-the-board suspension of convertibility on basis of exceptional cases, would require us to misinterpret agreement and to ignore legislative history.

(3) Proposal finally worked out which met our objections and which was approved by Sec of Treas and me last evening for submission to Brit was as fol:

(a) Brit to address letter to us advising that they find it necessary to take stringent measures to counter recent excessive drains on dollar resources which drains, if permitted to continue, would defeat objectives of financial agreement. Accordingly Brit advise that control of transferability to be imposed at close business today. Action is taken as an emergency and temporary measure which Brit consider to be within intention and purposes of agreement and which they hope will enable them to take appropriate action to assure limited dollar resources of UK available for purposes contemplated by agreement. Brit confirm that payments between UK and US will not be affected by this action and that restrictions now contemplated should not be interpreted as indicating modification of Brit view of desirability maintaining full and free convertibility of sterling which, as long-run objective, is indispensable to Brit financial policy. Brit state that under circumstances, financial agreement provides for consultation prior to agreement if exceptions are to be made to the principle of convertibility. Brit would not propose to notify any further withdrawals from remaining balance of loan until consultation has been carried out.

(b) US reply takes sympathetic note of grave drains on Brit dollar resources in excess of normal flow of current transactions with consequent peril to re-creation multilateral payment system which is major objective financial agreement. Letter advises that we understand action Brit taking today is of emergency and temporary nature deemed essential to afford Brit opportunity to take measures to protect system of convertibility from abuses endangering its survival. US notes with satisfaction assurances of UK that it will be possible to work out proposed action within terms and purposes of agreement. Also notes statement in last sentence in (a) above.

(4) At meeting last night Brit agreed to transmit to UK for its approval exchange of letters outlined (3) above. We have just been advised that Brit Government has approved and announcement is being made at 4 p. m. this afternoon.¹

Lovett

1. The texts of the letters exchanged by Secretary of the Treasury Snyder and Chancellor Dalton are printed in “Report of Activities of the National Advisory Council on International Monetary and Financial Problems, April 1, 1947 to September 30, 1947”, Appendix “C”, House Document No. 501, 80th Cong., 2nd sess., pp. 22–23. The letters were released simultaneously in Washington and London and were printed in the New York Times, August 21, 1947.