Office of the Historian

203. Memorandum From Secretary of the Treasury Fowler to President Johnson1

Washington, September 10, 1968.

AGREEMENT ON STERLING CREDIT PACKAGE

At the BIS meeting in Basle on September 8, 1968, agreement was reached on the $2 billion credit package “safety net” for sterling balances. It was announced by the BIS on September 9 that the new arrangements will be brought into force immediately.

The Governor of the Bank of England reported on the results of the U.K.’s consultations with the sterling area countries. In these consultations, each of the 40-odd sterling countries was offered a dollar value guaranty on all but 10 percent of its official sterling reserves in exchange for an undertaking to hold substantially the same proportion of sterling in its total reserves as it does now. Each such agreement is legally binding for three years, with specific provision for two-year extension by mutual consent.

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The U.K. has completed negotiations on this basis with some thirty countries holding about 80 percent of official sterling balances. Final agreements with the remaining ones are expected very soon.

There was considerable discussion about the question of making up the $200 million French share, since the French Government in the light of present circumstances was unwilling to agree to participate. (France has lost almost $3 billion in reserves since the May riots.) Also, Belgium, Switzerland and Japan found it necessary to reduce their shares below the amounts envisioned last July. To offset these shortfalls and to increase the total, Germany, Italy, the three Scandinavian countries and the United States increased their shares and the BIS took a share. The U.S. share is just under one-third of the total.

The shares are as follows:

(Amount in millions of dollars)
Original Proposal Final
Austria $50 $50
Belgium 100 70
Canada 100 100
Denmark }
Norway 65 125
Sweden
France 200 —
Germany 350 400
Italy 200 225
Japan 100 80
Netherlands 100 100
Switzerland 125 100
United States 550 650
BIS — 80
Total $1,940 $1,980

Note: Belgium and Japan will seek further governmental authorization to increase their shares by $10 million each to make the package an even $2 billion.

Under the agreement, the Bank of England will be entitled to draw some $600 million right away and probably will do so and use the proceeds to repay short-term credits provided in November 1967 and March of this year.

Henry H. Fowler
  1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. V [1 of 2], Box 3. Confidential. Transmitted under cover of a September 10 memorandum from Rostow to the President, which summarized the memorandum and concluded: “The agreement is now in force. The market reaction was good.”↩