will, not later than one year after the effective date of this Agreement unless in special cases a later date is agreed upon after consultation, be freely available for current transactions in any currency area without discrimination. 11. Definitions. For the purposes of this Agreement: (i) The term "current transactions" shall have the meaning prescribed in Article XIX (i) of the Articles of Agreement of the International Monetary Fund. (ii) The term "sterling area" means the United Kingdom and the other territories declared by the Defence (Finance) (Definition of Sterling Area) (No. 2) Order, 1944, to be included in the sterling area, namely "the following territories excluding Canada and Newfoundland, that is to say (a) any Dominion, (b) any other part of His Majesty's dominions, (c) any territory in respect of which a mandate on behalf of the League of Nations has been accepted by His Majesty and is being exercised by His Majesty's Government in the United Kingdom or in any Dominion, (d) any British protectorate or protected State, (e) Egypt, the Anglo-Egyptian Sudan and Iraq, 12. Consultation on Agreement. Either government shall be entitled to approach the other for a reconsideration of any of the provisions of this Agreement, if in its opinion the prevailing conditions of international exchange justify such reconsideration, with a view to agreeing upon modifications for presentation to their respective legislatures. Signed in duplicate at Washington, District of Columbia, this 6th day of December, 1945. For the GOVERNMENT OF THE UNITED STATES OF AMERICA: FRED M. VINSON Secretary of the Treasury of the United States of America For the GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND: HALIFAX. His Majesty's Ambassador Extraordinary and Plenipotentiary at Washington (e) Joint Resolution to Implement Further the Purposes of the Bretton Woods Agreements Act by Authorizing the Secretary of the Treasury to Carry out an Agreement with the United Kingdom, and for Other Purposes1 Whereas in the Bretton Woods Agreements Act the Congress has declared it to be the policy of the United States "to seek to bring about further agreement and cooperation among nations and inter 1 Public Law 509, 79th Cong., S. J. 138. national bodies, as soon as possible, on ways and means which will best reduce obstacles to and restrictions upon international trade, eliminate unfair trade practices, promote mutually advantageous commercial relations, and otherwise facilitate the expansion and balanced growth of international trade and promote the stability of international economic relations"; and Whereas in further implementation of the purposes of the Bretton Woods Agreements, the Governments of the United States and the United Kingdom have negotiated an agreement dated December 6, 1945, designed to expedite the achievement of stable and orderly exchange arrangements, the prompt elimination of exchange restrictions and discriminations, and other objectives of the abovementioned policy declared by the Congress: Therefore be it Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury, in consultation with the National Advisory Council on International Monetary and Financial Problems, is hereby authorized to carry out the agreement dated December 6, 1945, between the United States and the United Kingdom which was transmitted by the President to the Congress on January 30, 1946. SEC. 2. For the purpose of carrying out the agreement dated December 6, 1945, between the United States and the United Kingdom, the Secretary of the Treasury is authorized to use as a publicdebt transaction not to exceed $3,750,000,000 of the proceeds of any securities hereafter issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under that Act are extended to include such purpose. Payments to the United Kingdom under this joint resolution and pursuant to the agreement and repayments thereof shall be treated as public-debt transactions of the United States. Payments of interest to the United States under the agreement shall be covered into the Treasury as miscellaneous receipts. Approved, July 15, 1946. 135. DISCUSSION OF DOLLAR EARNING PROBLEM BETWEEN THE UNITED STATES, THE UNITED KINGDOM, AND CANADA 1 Background Memorandum for the Press From the State and Treasury Departments, August 26, 1949 LONDON DISCUSSIONS 1. During Secretary Snyder's visit to London in July, the Secretary, Ambassador Douglas, and Ambassador Harriman had a general exchange of views with the Chancellor of the Exchequer, Sir Stafford Cripps, the President of the Board of Trade, Harold Wilson, and the Canadian Minister of Finance, Douglas Abbott, concerning the balance of payments between the dollar and sterling areas. The conversations reviewed the recent acceleration in the drain on the reserves of the sterling area, and the British representatives outlined 1 Department of State Bulletin of September 5, 1949, pp. 353-355. the steps which they felt it necessary to take to deal with that immediate situation. It was agreed at that time that further consideration should be given to the balance-of-payments problem and that possible remedies would be explored. The discussions now scheduled for September 7 are designed to examine these matters, in the light of the information developed by technical and fact-finding discussions among the experts of the three countries. RECENT LOSS OF RESERVES 2. The United States Government fully recognizes the serious import of this situation both for the British Empire and the rest of the world. While in London, Secretary Snyder was much impressed with the earnest effort being made by the British Government to deal with a situation which has proved somewhat more difficult than its earlier estimates. During the war years Britain's foreign exchange deficit totaled nearly 40 billion dollars. Half of the total was financed through lend-lease, and the remainder had to be financed by borrowing from other nations or by liquidating investments and utilizing reserves. Some 4.5 billion dollars worth of foreign investments was sold during this period while the rest of the deficit was met through the accumulation of sterling by other countries and by the RFC loan and dollar loans and gifts from Canada. The British still hold substantial longterm assets abroad. British investments in the United States are valued at about 2 billion dollars, and the value of investments in other areas is several times that figure. Since the war, the British Government has achieved considerable success in many of its economic efforts. Industrial production has been raised to the level of 136 percent of 1938. The physical volume of imports of the United Kingdom has been reduced to 82 percent of 1938. These figures are only two indications of the serious efforts being made by the United Kingdom to make up for the ground lost during the war. Notwithstanding these fine efforts, the drain on British reserves of gold and dollars in 1949 has been larger than anticipated. The central reserves of the sterling area fell from 1,898 million dollars on March 31, 1949, to 1,636 million dollars on July 30, 1949. It had been hoped that it would not be necessary to draw further on these reserves. DOLLAR POSITION IN 1946-48 3. During the 3 years 1946-48, the sterling area paid out gold and dollars in the amount of 6.7 billion dollars in excess of its own current dollar earnings. This heavy deficit resulted from a number of factors in the postwar situation which had not been experienced before. Investment and shipping income did not contribute as heavily to earnings as before the war, import prices were higher, and normal sources of supply, particularly in Eastern Europe and Southeast Asia, were not available. During this period, the United States extended financial assistance in the amount of more than 4.4 billion dollars. This was equivalent to more than two-thirds of the over-all shortage of dollars. In addition, Canada made available approximately a billion dollars. THE TREND OF RESERVES 4. The gold and dollar reserves of the sterling area, in spite of this assistance, were reduced from 2,466 million dollars on January 1, 1946, to 2,063 million dollars on January 1, 1948. From that date to June 30 of this year there was a further decline of 427 millions, of which 262 million occurred during the second quarter of 1949. As of June 30, the official reserves had fallen therefore to 1,636 million dollars. CURRENT AND PROSPECTIVE DOLLAR DEFICIT 5. It is this sharp drop in the second quarter of 1949 which has caused concern. Looking at the picture before making any allowances for foreign assistance, the dollar deficit of the sterling area almost doubled, amounting to 633 million dollars in April-June, as against 330 million dollars in the first quarter of the year. While the figures of the second quarter may have been influenced by some temporary factors, the British Government has apparently concluded that the downward trend in reserves must be corrected. The year ending June 30, 1949, as a whole has cost 271 million dollars in reserves, despite an allocation of 1,239 million dollars from ECA for that period. The British Government estimated its dollar requirements from ECA for the year ending June 30, 1950, at 940 million dollars in its initial submission to OEEC, but has recently submitted to OEEC a revised estimate of 1,518 million dollars for that year. This latter estimate, however, does not take into account the cuts in the import program announced in July. CUT IN IMPORT PROGRAMS 6. The basic reason for the loss of reserves was the excess of dollar imports of the sterling area over the amount available to the area from dollar earnings and from the funds provided by the United States and Canada under their respective programs of foreign assistance. Το meet this situation the British Government therefore decided to cut back the dollar-import program of the United Kingdom by about 400 million dollars, as compared with the 1948 level of imports from the dollar area. This represents a cut of about 25 percent in the value of dollar imports, but corresponds to less than 6 percent of total United Kingdom imports from all sources. It is understood that because of lower dollar prices for some foods and raw materials in 1949, as compared with 1948, the physical volume of dollar imports will not fall by as much as 25 percent. As a result of the Empire Conference held in London last July, most of the sterling-area countries have given general undertakings to carry out similar reductions of about 25 percent in their dollar-import programs. This is designed to save about 250-300 million dollars per annum to the sterling area. SIGNIFICANCE OF IMPORT ADJUSTMENT 7. The significance of this adjustment should not be exaggerated. As Sir Stafford Cripps stated before the House of Commons last July: "Although this fall in our reserves is a serious development, yet any comparison with the events of July and August 1947 would be entirely misleading." Under the European Recovery Program it was anticipated that difficulties would be encountered from time to time in making the necessary adjustment to the declining level of United States assistance. Unless dollar earnings were to increase proportionately, it was understood that contraction of imports from the dollar area would be necessary. It is hoped that the physical volume of imports into the sterling area from the dollar area will be adequate at the reduced level to permit the continuation of economic progress in the United Kingdom, although the rate of progress will naturally be somewhat slower. The Chancellor of the Exchequer has indicated his hope that it will be possible to maintain existing levels of consumption and investment in many lines of activity. IMPORTANCE OF INCREASED DOLLAR EARNINGS 8. The decline of British reserves and the imposition of these import restrictions does, however, call attention to the importance of an increase in the dollar earnings of the sterling area. It is clear that the amount of assistance available under the Recovery Program for all participants will be about 30 percent below last year's program. Unless dollar earnings are increased to offset the declining scale of United States assistance, further adjustments may have to be made in subsequent import programs. It is expected that in the forthcoming conference there will be an exchange of views with respect to measures which may be proposed by the British Government for this purpose, and also discussion of related questions concerning the ability of the United States and Canada to facilitate an expansion of British dollar earnings. There is, of course, no easy or ready process by which this can be accomplished. On the part of the British Government and the other authorities in the sterling area the problem involves difficult and painstaking examination of a wide variety of economic factors. Policies designed to accomplish this objective may have to be developed and pursued along many fronts, and their effects may be felt only gradually in many cases. PURPOSE OF THE CONFERENCE 9. It is the primary purpose of the forthcoming conference to exchange views concerning the British dollar earnings problem, in the light of the need for adjustment to a declining level of United States assistance. It is recognized that this problem involves grave difficulties not susceptible of quick and easy solution. The United States expects the problem to be considered within the existing framework of United States foreign economic policy as expressed in such measures as the Reciprocal Trade Program, the International Trade Organization, the European Recovery Program, and the institutions established at Bretton Woods. The United States Government is definitely hopeful that beneficial conclusions may be reached. It cannot, of course, forecast in any way the results of the conference. |