NAC Files, Lot 60D137, Box 367
Memorandum by the NAC Staff Committee to the National Advisory Council
Doc. No. 948
Subject: Proposed European Clearing Union
The ECA has submitted for the consideration of the Council its draft plan for a European Clearing Union, which is now under discussion with the OEEC participating countries.1 (The proposal is outlined in NAC Document No. 942 of December 20, 1949.2) In addition to provisions for net multilateral settlement of balances between members (including the sterling area, and possibly the sterling transferable accounts system as a whole), the proposal suggests the substantial elimination of quantitative restrictions on trade between the OEEC participating countries and the establishment of incentives and administrative methods for attaining coordination of monetary and economic policies between those countries.
The clearing union would in effect establish a regional monetary organization which in part would perform functions essentially similar to those exercised on a global basis by the International Monetary Fund.
A United States contribution to the union could best be effected if ECA legislation were amended.
The scheme is conceived as a possible economic measure in a step-by-step approach to the progressively closer association, political, military and economic, of the countries of the free world. The most pressing problems and the greatest opportunities are believed to be among the countries of Western Europe and those areas directly tied to them. Measures centered on Western Europe are within the framework of what will probably be somewhat slower progress toward closer association of the entire North Atlantic Community.3
These broad goals are not an issue in this paper. The specific proposal for a clearing union, however, raises certain questions of relationship to other areas of United States policy which are set forth in this paper, together with some specific problems relating to operation and financing of the proposal.[Page 816]
1. Relation of Clearing Union to U.S. Financial and Trade Policies as Embodied in IMF, ITO and GATT
It is United States policy under ITO and GATT that permanent exceptions to the rules of nondiscrimination should be granted to regional associations only if their members have taken definite commitments to establish customs or general economic unions. In the monetary field, the basic premise of the International Monetary Fund is that individual countries should move as rapidly as possible toward reduction of payments barriers and the assumption of convertibility. In its drive for European integration ECA has sought to avoid political difficulties by encouraging partial steps toward integration (as in the proposal under discussion) without demanding firm commitments as to ultimate establishment of an economic union. However, ECA believes that the development of a common monetary system, the equivalent of a single currency, should be an ultimate objective of plans for regional economic integration.
The ECA proposal does not deal with the further problem of transition toward the fundamental objective of United States policy in this field—namely, multilateral trade and dollar convertibility. It is clear that it will be difficult to develop satisfactory proposals of this character, in part for the reasons which have made it difficult to implement the principles of the IMF and the ITO.
The following questions therefore arise:
- Would the regional clearing union in fact develop into a full economic union?
- If not, would participation in a clearing union make it difficult or impossible for any member of the union to take measures leading toward the establishment of convertibility with the dollar area to any greater extent than do other members of the clearing union?
- Will the proposal lead eventually in the direction of multilateral trade and dollar convertibility, or will it tend to result in a large and permanent soft currency trading area with a common policy of discrimination against trade with the dollar area, and restrictions on exchange transactions with that area?
The proposed clearing union would perform important functions similar to those of the Fund. It is, therefore, possible that Canada, Latin America, and other countries excluded from the clearing union will take this as an indication that the United States is shifting away from the pursuit of the objectives of the Fund. The following questions arise:
- Could such an organization with United States participation be reconciled with the United States pledge of leadership and responsibility in the Fund?
- In particular, given the size and significance of the participants in the clearing union, would the Fund in practice lose to the clearing [Page 817] union the major part of its present responsibilities and could this be prevented?
- If not, can other methods be found to deal with the problem of providing for regional payments within the European area and of furthering the economic integration of Europe?
[Here follows a section entitled “Participation by the United States in the Clearing Union.” Part (a) dealt with technical questions regarding the requirements and forms of a United States financial contribution.]
(b) Management mid Policy Formation
The ECA proposal suggests that the clearing union should be managed by the Board of Directors on which the United States would have a member. The significance of participation by the United States in the management of the clearing union would depend greatly on the functions assigned to the union and to the nature and extent of the United States financing.
The most serious questions arise in relation to the provision by this country of funds for credits to be given out by the union on the basis of policy undertakings by the recipients. Under proposals giving an active policy role to the clearing union, such as is envisaged by the tentative ECA proposals, United States participation in management would have the obvious advantage of giving the United States a recognized voice in an organization dealing with questions of great importance.
Moreover, support for a union having important policy functions would certainly be more readily forthcoming from the Congress and people of the United States if this country had representation in the supervision of the union. The case for participation by the United States in management would be much less certain with regard to a union functioning automatically on a basis of credit or payment margins agreed on in advance, as the safeguards to United States interests would be embodied in the agreement rather than represented by participation in discussion of management.
On the other hand, the question arises, particularly as relates to long-range influence by the United States toward the ultimate goal of worldwide convertibility of currencies, whether the voting position of the United States in a European union would be comparable to the weighted voting strength of this country in the International Monetary Fund. It is questionable whether there is any way of assuring any such continuing position for the United States in a European clearing union as in the Fund.
The relationship of participation by the United States in a clearing union raises another question respecting the International Monetary Fund. This question is whether United States participation in an [Page 818] organization designed to deal on a regional basis with the same type of problems as the International Monetary Fund can be reconciled with the position of primary sponsorship for and leadership in the Fund which has been regarded as a cardinal principle of American economic foreign policy. With respect to an institution analogous to the clearing union which had been proposed for Latin America, the National Advisory Council registered its opposition in the NAC Action No. 226, March 18, 1948,4 for the reason among others of the serious consequences to the International Monetary Fund which were to be expected.
To reconcile these difficulties, it has been suggested that the United States representative in the clearing union should abstain from active participation in matters concerning the Fund. A question may be raised, however, whether this suggestion would not in fact eliminate the United States from a substantial part and perhaps a majority of the important matters which would come before the clearing union. This might suggest the possibility of another alternative, namely, that the United States be represented by an observer rather than by a voting member.
If European economic unification is a goal of United States policy, it is necessary to face these difficulties and see whether some modus vivendi can be reached between the position of the United States toward the management of the European clearing union and the position of this country in the global institutions to the support of which the United States is committed.
[Here follows discussion of the scope of the clearing union (section 3) and of the question of the relation of the proposed clearing union to progress toward dollar viability (section 4).]
5. Instructions to United States Executive Director of the International Monetary Fund.
In due course the United States Executive Director5 will need instructions on how to reply to the following points raised in a memorandum of January 12, 1950 from the Managing Director of the Fund (see attachment A):6[Page 819]
- “(a) The Fund is vitally concerned with European payments problems and should participate in the present discussions at both the technical and policy levels.
- “(b) The Fund should be consulted by the members before adoption of the plans now under discussion.
- “(c) If it is found necessary or desirable to set up a regional monetary organization, the Fund can provide such an organization.”
He will also need guidance as to the position he should take in any discussion in the Fund on the ECA proposal.
- For documentation regarding European economic integration, see vol. iii, pp. 611 ff.↩
- Not printed.↩
- For documentation concerning the North Atlantic Treaty Organization, see vol. iii, pp. 1 ff.↩
- Not printed.↩
- Frank A. Southard, Jr.↩
Not printed. The position of the Managing Director of the Fund seemed to be this: The establishment of a regional exchange organization should be the business of the International Monetary Fund, and, if such were deemed necessary, the Fund itself should provide the machinery for such an organization. Unnecessary conflicts of policy and action and wasteful duplication of time and personnel would be the inevitable result of the establishment of a regional organization. Accordingly, international monetary action would be hindered rather than promoted.
It was in this context that the Managing Director posed the questions enumerated above.↩