50. Letter From Secretary of the Treasury Anderson to President Eisenhower0

Dear Mr. President: I thought that you should be made aware of two impending financial transactions, the second of which, if it is to be completed, requires your formal approval.

Prepayment by British of Loan from the Export-Import Bank

You will recall that, as a result of the Suez crisis, the British pound came under pressure late in 1956, with the result that the British arranged for a drawing from the International Monetary Fund of $561 million and also, in February, 1957, obtained a secured credit from the Eximbank of $500 million with interest at 4½%. Under the terms of the Eximbank credit, any advances were to be repaid in ten semiannual installments, the first to be due in three years from the date of the loan disbursement. Drawing rights under the original credit were to extend to January 31st, 1958, but a further extension was granted to February 28, 1959. Provision was made for a commitment fee of 1/4th of 1% on the unused portion of the credit. That extension period has now expired.

In October, 1957, the British Treasury drew $250 million on the Eximbank credit, which amount is still outstanding.

Due to courageous corrective measures taken by the British Government, Britain’s balance of payments situation has sharply improved, as indicated by an increase in the British holdings of gold and dollars from a low point of about $1.8 billion in 1957 to over $3.2 billion at the present time. That is after the repayment in March of this year of $200 million to the International Monetary Fund on the 1956 advance and payment of $162 million in gold as additional subscription to the Fund. Despite this, it is estimated that Britain’s holdings of gold and dollars will increase something like $300 million in calendar 1959, in which year it is estimated the United States will have a comparable loss of $4.5 billion in the balance of payments.

The British have come to believe (with some tactful encouragement from us) that their position is now sufficiently strong so that it might be advisable for them to repay the $250 million advanced by the Eximbank, thereby saving the interest charge on that amount. However, their willingness to thus repay will be contingent on the Eximbank agreeing to reinstate the credit to the extent of $250 million [Page 122] but with any drawing under the credit requiring payment within the original time limit and at the same rate of interest. The Eximbank is also asked to waive any commitment fee on the restored $250 million of the credit.

Lord Cromer has advised us that the timing and final details of this transaction will be worked out when the Chancellor is here in Washington in late September, but he also indicates that it is the present intention to complete the transaction before the end of our current fiscal year.

When the advance of $250 million was made by the Eximbank in 1957, it increased expenditures in the budget to that extent. Similarly, repayment to the Eximbank, when made, will have a budgetary impact in the opposite direction.

The F.Y. 1960 budget contemplates that the Eximbank will make no net claim on the Treasury, that is, that it will try to sell to the commercial banks participations in its present loans up to an amount of $234 million, which, taken with repayments on existing loans, will offset new loan disbursements. If this is achieved, the $250 million to be received from the British Treasury as a prepayment will have the effect of reducing expenditures in the 1960 F.Y. budget by a like amount. If there should be any short-fall in the sales of participations just referred to, the British prepayment will more than offset it.

Gold Transactions with the International Monetary Fund

You may remember that, in February, 1956, the International Monetary Fund, for the purpose of acquiring some earning assets, arranged to sell $200 million of gold to the United States Treasury and to invest the proceeds in Treasury bills.

As a result of the increased subscriptions of capital to the IMF, that institution is in process of acquiring approximately $1.3 billion of additional gold, $344 million of which was provided directly by the United States out of its gold stock in payment of 25% of its subscription to the additional capital of the Fund. Considerable additional gold has been and will be provided indirectly by the U.S. from its gold stock through sales of gold to other countries for them to use as payments on their increased subscriptions to the Fund.

Under any foreseeable circumstances, the IMF will not have use for a number of years for all of this additional gold it is now acquiring. Therefore, the Executive Board of the IMF is proposing to take action to increase the size of its investment fund in short-term U.S. Treasury [Page 123] securities from $200 million to $500 million.1 This would involve the sale to the U.S. Treasury of $300 million of gold. Plans are being worked out with the Fund management to obtain a matching, so far as possible, of such purchases of gold by the Treasury with prospective sales of gold by the U.S. Treasury to other countries, thus avoiding, to that extent, unnecessary distortions in the U.S. gold stock. Aside from lessening the decline in the U.S. gold stock, the investment by the Fund of the proceeds of the gold sales will provide appreciable support to the market for U.S. Treasury bills in the weeks ahead.

The National Advisory Council has already taken action to approve the U.S. Executive Director of the Fund concurring in the decision to sell the gold and invest the proceeds as described. The Council has also approved the U.S. Treasury entering into an agreement to resell an equivalent amount of gold to the Fund on demand, paralleling what was done in 1956.

The Council has also approved my recommending to you that the 1/4th of 1% charge on purchases and sales of gold by the U.S. should be waived with respect to the proposed transaction, as, under the Gold Reserve Act of 1934 and existing delegations of authority, the Secretary of the Treasury may buy and sell gold without such a charge only with your approval. As this transaction serves our interest as well as the Fund’s, this waiver of charge is warranted and was similarly granted by you in respect to the 1956 transaction.

Enclosed is a short, formal letter requesting this approval from you.2

As it has been agreed with both the Eximbank and the IMF that information about these respective transactions will not be released without their final consent, this letter has accordingly been classified.

Faithfully yours,

  1. Source: Eisenhower Library, Whitman File, Administration Series, Robert B. Anderson. Secret. Filed as an attachment to a letter of the same date from Anderson to the President; see footnote 2 below.
  2. An IMF memorandum of July 15 setting forth this proposal, along with related documentation, is in National Archives and Records Administration, RG 56, Records of the Office of the Secretary of the Treasury, Robert B. Anderson, Subject Files, International Monetary Fund, 1959–1961, International Matters.
  3. Not printed; reference is to the August 6 letter cited in the source note above. The formal letter contained a space for the President to sign, indicating his approval; he signed it on August 7.