The Chancellor of the Exchequer (Dalton) to the Secretary of the Treasury (Snyder)
My Dear John: Thank you for your letter of the 7th May1 on the Sterling Balances negotiations. We are pressing forward, and Gordon [Page 16] Munro will be keeping you informed of what we are doing and what we have in mind.
The broad picture is as follows. The two largest of our problems—India and Egypt—will come to a head in June. The Egyptians should be arriving at the beginning of the month, and the Indians in the second half. We shall be able to handle Iraq, either over here or at Baghdad, towards the end of the month.
In the meantime, we are continuing with other negotiations. We have completed arrangements with some European countries—Portugal, Belgium, Holland and Italy—and are proceeding with others, including Czecho-Slovakia, Norway, Denmark, Spain, Sweden and Switzerland. The Argentine problem is settled, and we have carried discussions with Brazil some distance, possibly within sight of a conclusion. The Uruguayan Delegation arrives in a few days. Australia and New Zealand have been very helpful with their willing cancellations, and we expect to complete arrangements—less formal than would be appropriate to other holders of balances—in due course. All our various arrangements will be within the framework of the Loan Agreement.
As regards the “segregation” of that part of the Sterling Balances of each creditor which is not to be released for current transactions, I think the technique must vary according to the capacity of the other party to control its financial affairs. With some countries, an informal agreement that they will maintain their balances at such and such a level should suffice; with others—and these, I fear, include the largest holders of sterling—something more stringent may prove to be inevitable. But, whatever the exact arrangements, they will have the same effect: that what we agree to release for current purposes will be for use in any currency area, while what is not released cannot be drawn upon for current transactions at all. It is against our own interests to allow drawings on the accumulated balances, for, in the end, this means using up current productive effort in unrequited exports. If we fail to reach agreement with any creditor, we shall probably have no alternative but to take the steps necessary to segregate past accumulations while leaving future accumulations free.
Like you, I should have liked to make permanent settlements between us and each of our creditors, but it is not easy to see how we could commit ourselves at this time to details of the rate of release after 1951. The rise in prices in the United States, coupled with slow recovery in other parts of the world, has left the future obscure. Given the tremendous demand for dollars in the world at large, we can offer much less than we would have hoped in the way of releases in the short run. On the other hand, the countries with whom we are negotiating will insist, in these circumstances, on waiting for several years in the [Page 17] hope of securing better terms in any final arrangements. I am sure that, in these conditions, it is wiser to make provisional settlements for five years. Before the end of the period we shall, of course, discuss further arrangements, which will be either for another period of five years, or, if things go well, for longer.
The inescapable fact is that all releases are, in the end, an added charge either on our current production or on our dollar credit. The first is as yet inadequate to our current needs, and the second is exhausting itself fast. We shall have to be modest in what we attempt accordingly.
With my warm personal regards,
Yours very sincerely,
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