The Secretary of State to the British Secretary of State for Foreign Affairs (Bevin)1
european payments union
- (a) The Secretary of State wishes to stress the importance of prompt action to bring the negotiations for a European Payments Union to a satisfactory conclusion. The present payments agreement expires June 30. The Council of Ministers of the OEEC is scheduled to meet on June 2. Agreement at the technical level should take place at least two weeks prior to the meeting of the Ministers. As a practical matter, therefore, these discussions at the official level should be brought to a satisfactory conclusion prior to May 15.
- (b) It is the view of the United States Government that the United Kingdom can and should participate fully in EPU on the basis of the Financial Experts Third Draft as modified by a solution of the sterling area relationship problem along the lines of that part of the continental proposal2 which deals with this problem.
- (c) If the United Kingdom participates
fully in EPU on the foregoing
basis, the following safeguards would be available:
- (1) If the United Kingdom suffers a significant loss of gold and dollar reserves as a result of payments to EPU, it could re-impose automatically multilateral quantitative restrictions, subject only to subsequent review by OEEC.
- (2) In the event that EPU operations should unexpectedly result in British dollar payment obligations beyond some agreed danger point, ECA would be prepared to consider the allotment of special dollar aid to the United Kingdom from the funds expected to be appropriated specifically for EPU purposes.
The action recommended in paragraph (b) relates to a proposal now before the British Government. The “Financial Experts Third Draft” is an OEEC document. The “continental proposal” would modify the Financial Experts Third Draft by a solution of the problem of full sterling area participation. Insofar as it deals with the problem of the sterling area participation, it is supported by France, Belgium, the Netherlands, and Italy, and is in substance acceptable to the United States. No technical argument has yet been presented against the sterling area provisions of the continental proposal. [Page 656] These provisions constitute the only proposal thus far presented on the relationship of the sterling area to EPU which is acceptable to the continental countries and the United States Government. The British Government’s proposal of March 20,3 and the proposal by the Secretary General of OEEC,4 have been thoroughly considered and found unacceptable by the continental group and by the United States Government.
If the British Government will take the action recommended, it will make possible the timely establishment of a satisfactory European Payments Union. By a satisfactory European Payments Union, the United States Government means one containing the following elements:
Full transferability among the currencies
of the participating countries. This means full
offsetting of all bilateral surpluses and deficits
culminating in a net overall position for each country
toward the others as a group. To extend the multilateral use
of sterling, there might well be a right of election by any
country in overall surplus to accept settlement in sterling
and thus build up its sterling reserves. In addition, there
should be a right of any country in overall deficit to use
previously accumulated sterling resources to meet part or
all of its overall deficit. At the same time, the United
Kingdom would be able to maintain its existing payments
arrangements. These would, however, only operate after full
Such a system would remove the pressures and incentives to discrimination arising from bilateral payments difficulties.
- Gold and dollar payments. The principle of progressively increasing gold and dollar payments by debtor countries combined with progressively smaller credits is required to provide proper incentives for debtors to move toward independence of aid and external balance. For creditors, dollar payments and credits extended should be combined to provide incentives to keep intra-European surpluses within manageable limits.
- Credits. Debtors should obtain and creditors grant credits to provide a transitional cushion during the remaining two years of ERP. As a consequence of such credits and fractional dollar payments, EPU would then be able to support the maintenance and expansion of intra-European trade as well as to maintain incentives for the participating countries to progress toward general convertibility.
- Quantitative restrictions. In accordance with understandings reached in OEEC, all bilateral quantitative restrictions should be eliminated upon the establishment of EPU, and multilateral quantitative restrictions remaining should be eliminated as early as possible thereafter.
- The foregoing arrangements, in addition to meeting the criteria implicit in paragraphs 1 to 4, would widen the use of sterling and thus increase its usefulness in financing current transactions and as a reserve currency.
- On the recommendation of Harriman and Katz, this aide-mémoire was handed to Bevin by Acheson in London on May 11 (840.00R/5–1150).↩
- See the description of this proposal below under “Comment.”↩
- Reference is presumably to the second proposal anticipated by Harriman in paragraph 3 of his Repto 1500, March 19, p. 644.↩
- Reference is presumably to the OEEC plan described in various sections of the ECA report of April 14, p. 646.↩