842.5151/9–847

The Assistant Chief of the Division of British Commonwealth Affairs (Foster) to the Ambassador in Canada (Atherton)

secret

Dear Mr. Ambassador: This is an effort to give you the story of what has happened at this end concerning the Canadian dollar problem and of what the feeling is here about the future. I must remind you that I am not an economist, nor have I been present at all the meetings relating to the problem. I would like to recall, also, that I am writing about matters which it has been impossible to talk about on the telephone—in which connection you will have in hand by now my recent letter concerning the tip we had that the line may be tapped.

As you know, the discussions began in June when Graham Towers came to Washington and talked one evening with Messrs. Acheson, [Page 118]Clayton, and Hickerson.1 Mr. Wrong and Mr. Rasminsky2 were also present. It was evidently the purpose at this first meeting to warn our people of the increasing gravity of the situation, which of course centered in the fact that the Canadians were selling on credit to “soft” currency countries and buying refrigerators, automobiles, et cetera, for dollars in the United States at a rate which was depleting their dollar balance by nearly $100,000,000 per month.

There followed a meeting at the Department in late June between Mr. R. B. Bryce, Director of the Economic Division, Department of Finance; Mr. V. W. Scully, Deputy Minister of Reconstruction and Supply; Mr. J. R. Beatie, Chief of the Research Department of the Bank of Canada; and Mr. J. R. Murray of the Canadian Embassy; and Mr. Wayne Jackson of EUR; Mr. Harold Spiegel of FN; Mr. Morse of the Federal Reserve Board; myself and other officers of the Economic Offices and Divisions. I enclose a memorandum3 concerning this meeting from which you will see that it was devoted entirely to the question whether it would be possible for the U.S. to assist Canada by throwing some government procurement her way. We had in mind procurement for the relief programs in Europe and the Near East and also possibly procurement for the needs of the U.S. armed forces. It was generally agreed that the most we could possibly hope to provide for Canada by these means would be somewhere between $25,000,000 and $50,000,000. The Canadians were talking about $500,000,000 or $700,000,000. The meeting was adjourned on the understanding that the Canadians would explore further in Ottawa concerning items that might be offered under the relief and armed services procurement programs, while the Americans would explore in Washington concerning the requirements of the programs.

Early in July Mr. Bryce returned to Washington and we had the second meeting. I enclose a copy of a secret memorandum dated July 83 concerning this meeting, which you will see was devoted to the same general subject, namely assistance through procurement for the relief programs and the needs of the armed forces.

Throughout these meetings in June and July the Canadians were emphatic in declaring that they would not under any circumstances devalue their dollar or impose import restrictions. They also said that they did not want to try to solve the problem by borrowing money. They felt that any of these three alternatives would be merely a stopgap palliative and not a fundamental cure.

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There have been no further talks along the lines of procurement and evidently the Canadians have dropped this possible solution as inadequate.

The next chapter consists in a call made on August 13 by Graham Towers on the Acting Secretary, Mr. Lovett. Mr. Towers was accompanied by the Canadian Chargé, Tommy Stone. I enclose a copy of Mr. Lovett’s own memorandum of conversation,4 which related to both the Canadian dollar problem and freight car embargo.

It now looks here, as it seems to look to you at Ottawa, as if the Canadians were now more intent upon getting a loan than upon seeking any other solution of their problem. Within the past several days I have begun to hear talk for the first time about the possibility of the Canadians imposing import restrictions—a possibility which they had previously denied. As far as I can gather at this end they are still as firm as ever against a devaluation of their dollar.

I have been unable to ascertain whether further visits from Graham Towers are expected in the near future. In fact, I can’t seem to find out what the next move by the Canadians is likely to be. You are probably far better informed on this angle than I am. In fact, you mentioned on the phone today that Mr. Clifford Clark5 might come to town a week hence.

The Canadians themselves have of course repeatedly told us, and they have said the same thing publicly, that the permanent solution of their problem lies in the reconstruction of Western Europe. That brings me to the very important point that top side in Washington is so preoccupied with the crisis in the U.K. and Western Europe that I fear it is going to be difficult to get much of a hearing for Canada’s problem at present. I have an impression that there is an increasing feeling in Washington that the capacity of the United States to assist the world is limited and that our resources ought to go first for the salvation of the U.K. and Western Europe. It is all very well to say that the United States cannot let Canada suffer an economic crisis. There is nobody in Washington who would disagree with that. The point is that most people in Washington will find it difficult to believe that Canada really is facing something grave. In every respect except the miserable problem of the dollar balance the Canadians seem to be just fine and dandy. The dollar problem seems to arise largely because of the spree of buying U.S. refrigerators, automobiles, et cetera. There seems on the surface to be nothing in the Canadian scene comparable to the truly desperate conditions of the U.K., France, and the rest.

If the Canadians are going to stake the solution on a loan or perhaps on a loan plus import restrictions, they will be up against the [Page 120]difficulty that $750,000,000 is not to be had for the asking in Washington these days. The loan would have to be authorized by Congress, and you know the job of persuasion which lay behind a loan to the U.K.6 The worst of it is the Congress is probably going to be very skeptical about a big loan for Canada. I don’t say this difficulty can’t be got over but I do say that it must be faced as a very great difficulty.

Under these circumstances I feel sure you will agree that you and I and the others concerned will have to be careful not to do anything that might arouse false or premature hopes among the Canadians. It is going to be difficult, though it should not be impossible, to follow the problem closely and to present a sympathetic attitude toward the Canadians while at the same time avoiding any action that might cause them to think that we were able and willing to make them a large loan without more ado.

September 9.

I had my talk last night with Jack Hickerson. I told him that you and I were deeply concerned by the increasingly grave situation and that we both wondered whether we shouldn’t be taking some sort of affirmative action rather than merely waiting about for Canadian proposals or requests. Jack said he fully appreciated that the Canadian situation is serious. He referred to the point which I made earlier in this letter: namely, that the situation in the U.K. and Western Europe is so much more serious that we have to put first things first. He added that of course we would never let Canada go down the drain. He felt, however, that for the present you and I should wait for approaches from the Canadians. “Under present circumstances”, he said, “I don’t see how you can do anything else”. He said he was not aware of any approach from this end more recent that Mr. Towers’ call on Mr. Lovett on August 13.

I shall of course be very much interested to read the despatch which you told me you were sending in towards the end of this week. I have no doubt it will throw a lot of light on the situation, particularly from the point of view of the present thinking and intentions of the Canadians.

I apologize for the hodgepodge nature of this letter, the dictation of which was interrupted at least thirty times between the beginning and the end. I shall not fail to let you know of any significant developments at this end.

With all best wishes,

Ever sincerely,

Andrew B. Foster
  1. Dean Acheson, then Under Secretary of State; William L. Clayton, Under Secretary of State for Economic Affairs; and John D. Hickerson, then Deputy Director of the Office of European Affairs.
  2. Hume Wrong, Canadian Ambassador in Washington, and Louis Rasminsky, Canadian representative on the International Monetary Fund.
  3. Not printed.
  4. Not printed.
  5. Memorandum by Robert A. Lovett, Under Secretary of State, not printed.
  6. William Clifford Clark, Canadian Deputy Minister of Finance.
  7. For documentation on the negotiation of this loan, see Foreign Relations, 1945, vol. vi, pp. 1 ff.