278. Memorandum From the President’s Special Assistant (Rostow) to President Johnson1
SUBJECT
- Sterling Crisis
I note you are seeing Joe Fowler at noon today.2 He may have to give you some background on the sterling crisis on which we may need a decision from you later in the day. We do not yet have all the information to put the issues properly before you.
The British came in Saturday to tell Fowler they were near the end of the line. Without assurance of long-term credit they may have to devalue—perhaps within a week. Their line of short-term credit is down to $600 to $800 million. The announcement of poor trade figures on Tuesday could keep the pound under pressure.
I won’t go into the pros and cons of letting the pound go. The main point is the risks for us are just too great to be worth the gamble—if it can be avoided through a good multilateral support operation. The European Central Bankers seem to be of the same mind.
[Page 584]It may be possible therefore to work out a support package through a large IMF stand-by credit, through a package of bilateral credits and swaps, or through a combination of both. There would be no budgetary or direct balance-of-payments costs for us in any action we might consider, and it would have to be multilateral or not at all.
It is our feeling, and it seems to be that of the Europeans, that this would be the last try at supporting sterling. But it would be well worth it, if it can be pulled off.