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THIS D O C U M E N T IS T H E P R O P E R T Y O F H I S B R I T A N N I C M A J E S T Y ' S
Printed
for
the
War
Cabinet.
October
GOVERNMENT
1943.
SECRET.
Copy N o .
W . P . (43) 4 2 8 .
2nd October,
1943.
WAR
CURRENCY
TALKS
NOTE
AT
CABINET.
WASHINGTON:
EXCHANGE
BY T H E C H A N C E L L O R OF T H E
STABILITY.
EXCHEQUER.
1. A n i m p o r t a n t q u e s t i o n h a s a r i s e n out of t h e d i s c u s s i o n s p r o c e e d i n g
between o u r D e l e g a t i o n ancl the r e p r e s e n t a t i v e s of the A m e r i c a n T r e a s u r y on t h e
procedure for s e c u r i n g a r e a s o n a b l e flexibility for e x c h a n g e s w i t h i n t h e
t ramewor k of a policy for e x c h a n g e s t a b i l i t y .
2. T h e d i r e c t i v e to t h e D e l e g a t i o n is c o n t a i n e d in W . P . (43) 383, p a r t i c u ­
larly p a r a g r a p h 5 (i) of S i r K i n g s l e y WoocFs covering note, a n d p a r a g r a p h s 7 (d)
and 10 (iii) of t h e M e m o r a n d u m by the T r e a s u r y . T h e g e n e r a l d i r e c t i v e w a s
approved in t h e C o n c l u s i o n s of t h e W a r C a b i n e t on the 2 n d S e p t e m b e r , 121 (43),
in the following t e r m s : —
" W h i l e c o u n t r i e s should r e t a i n a reasonable m e a s u r e of e l a s t i c i t y over
t h e i r o w n e x c h a n g e r a t e s , a n e n d e a v o u r should be m a d e to e n s u r e t h a t
decisions to m o d i f v e x c h a n g e r a t e s were t a k e n by r e f e r e n c e to some objective
test."
3. T h e o r i g i n a l C l e a r i n g U n i o n scheme a n d both p u b l i s h e d versions of t h e
A m e r i c a n S t a b i l i s a t i o n F u n d scheme c o n t e m p l a t e d f a i r l y precise rules g o v e r n i n g
the a d j u s t m e n t of e x c h a n g e s . T h e p r e v i o u s discussions between o u r officials a n d
the A m e r i c a n T r e a s u r y h a d m a d e it clear t h a t those rules w e r e too r i g i d to fit t h e
facts; some qualification w o u l d be necessary, p a r t i c u l a r l y for t h e t r a n s i t i o n a l
period a n d for the p r o b l e m of t h e l i b e r a t e d t e r r i t o r i e s . O u r D e l e g a t i o n w e r e n o t
given a more p r e c i s e i n d i c a t i o n of t h e p r i n c i p l e s on w h i c h t h e a r r a n g e m e n t s m i g h t
be made because t h e q u e s t i o n f o r m s p a r t of t h e g e n e r a l s t r u c t u r e of t h e scheme,
and t h e r e w e r e also q u e s t i o n s of p r e l i m i n a r y t a c t i c s in the d i s c u s s i o n s w h i c h t h e
Delegation w o u l d h a v e to d e c i d e for themselves.
4. T h e p r e l i m i n a r y d i s c u s s i o n s in W a s h i n g t o n on t h i s m a t t e r ancl t h e
" t e n t a t i v e p r o p o s a l s " s u b m i t t e d in w r i t i n g to t h e A m e r i c a n s by our D e l e g a t i o n
about the 1 7 t h S e p t e m b e r a r e s h o w n in A b i d e 4173 ancl 4174 (iVppendix A ) .
These t e l e g r a m s w e r e c o n s i d e r e d by t h e T r e a s u r y a n d t h e B o a r d of T r a d e in con­
sultation w i t h the B a n k of E n g l a n d . I t w a s a g r e e d t h a t a n a u t o m a t i c a d j u s t m e n t
of exchange r a t e s by reference to objective s t a t i s t i c s on t h e b a l a n c e of p a y m e n t s w a s
i m p r a c t i c a b l e ; even in o u r own c o u n t r y , w h e r e t h e t e c h n i q u e of e x c h a n g e c o n t r o l
is well developed, c o m p l e t e d a t a have not yet been evolved.
I n a g r e e m e n t w i t h t h e B o a r d of T r a d e , t h e T r e a s u r y sent a t e l e g r a m , 6356
( A p p e n d i x A ) , on t h e 2 2 n d S e p t e m b e r , r a i s i n g q u e s t i o n s a b o u t t h e m e r i t s of t h e
proposal a n d t h e difficult m a t t e r of t h e p r o c e d u r e for a p p r o v a l . T h e D e l e g a t i o n
replied on t h e 24th S e p t e m b e r i n t e l e g r a m s A b i d e 4274 ancl 4275 ( A p p e n d i x A ) .
5. T h e d r a f t t e l e g r a m to W a s h i n g t o n , A p p e n d i x B. r e p r e s e n t s the view
which I took u p o n the m a t t e r . I a r r a n g e d t h a t t h i s d r a f t should be c o n s i d e r e d
by all t h e D e p a r t m e n t s i n t e r e s t e d , m a n y of w h o m , however, a r e d i s p o s e d to t h e
view t h a t t h e p r o p o s a l s in 4 f 7 4 r e p r e s e n t a reasonable flexibility for us a n d
reasonable p r o t e c t i o n a g a i n s t u n c h e c k e d d e p r e c i a t i o n by o t h e r c o u n t r i e s , a n d
that the u n d e n i a b l e difference b e t w e e n the w a y of a p p r o a c h in A p p e n d i x B a n d
["26174]
B
t h e p r o p o s a l s in 4174 might e m b a r r a s s our D e l e g a t i o n , and might, even be regarded
by t h e A m e r i c a n s as evidence t h a t we w e r e r e t r e a t i n g from t h e policy of t r y i n g
to hold the i n t e r n a t i o n a l e x c h a n g e position p r e t t y firmly.
6. W h i l e these a r g u m e n t s must be carefully w e i g h e d . 1 a m impressed also
by o t h e r c o n s i d e r a t i o n s g o v e r n i n g t h i s m a t t e r w h i c h 1 should like to develop to
my colleagues.
J . A.
Treasury Chambers, S.W. 1.
2nd October. 1943. APPENDIX
From
Washington
to Foreign
A.
Office, dated
IQth September,
1943.
(No. 4173. Abide.)
F o l l o w i n g for T r e a s u r y from Keynes :—
I n p r e l i m i n a r y discussions before the first m e e t i n g of t h e J o i n t AngloA m e r i c a n C o m m i t t e e t h e B r i t i s h c u r r e n c y delegation considered w h a t proposals
we should make w i t h a view to r e t a i n i n g freedom for i n d i v i d u a l c o u n t r i e s to
v a r y t h e i r e x c h a n g e r a t e a t need while still g i v i n g p r o p e r r e c o g n i t i o n to the
p r i n c i p l e of stability. W e explored the possibility of a precise objective test or
formula which, if its r e q u i r e m e n t s were satisfied, would confer upon a member
c o u n t r y a n u n d i s p u t e d r i g h t to v a r y i t s r a t e . W e concluded t h a t no precise
f o r m u l a could be devised which would have a hope of w o r k i n g in p r a c t i c e , but
t h a t c e r t a i n objective tests of a more g e n e r a l c h a r a c t e r m i g h t be specifically
prescribed, a n d t h a t this in combination w i t h a limited u n f e t t e r e d discretion
and an emergency r i g h t to act in absence of a p p r o v a l m i g h t meet the case.
2.
O u r t e n t a t i v e proposals a r e given in my i m m e d i a t e l y f o l l o w i n g telegram.
3. A t the m e e t i n g w i t h the A m e r i c a n s I e m p h a s i s e d o u r belief in the
p r i n c i p l e of e x c h a n g e s t a b i l i t y , but outlined t h e political a n d economic objections
w h i c h w e r e felt very s t r o n g l y on o u r side to a n y a t t e m p t to e n s h r i n e t h e principle
in r i g i d obligations. A f t e r s k e t c h i n g o u r own t e n t a t i v e i d e a s w e h a n d e d our
p r o p o s a l s to the A m e r i c a n s as a n i n f o r m a l note of s u g g e s t i o n s w h i c h h a d occurred
to some members of t h e B r i t i s h delegation, but w h i c h h a d n o t been r e f e r r e d to
London a n d should not be r e g a r d e d as h a v i n g a n y a u t h o r i t a t i v e a p p r o v a l or as
being m o r e t h a n a s t a r t i n g p o i n t for discussion.
4.
W h i t e ' s p r e l i m i n a r y reaction w a s not favourable.
(a) T h e U n i t e d S t a t e s T r e a s u r y desired to avoid r i g i d i t y a n d recognised
the p a r t w h i c h flexibility m u s t p l a y in a n y i n t e r n a t i o n a l scheme.
(b) H e was strongly a g a i n s t a n y precise objective f o r m u l a , a n d s a i d that
t h e i r own conclusion w a s t h a t it would be w i s e r t o rely on t h e collective
j u d g m e n t of those in c h a r g e of the i n t e r n a t i o n a l i n s t i t u t i o n . B u t he
did not a p p e a r to object to our m o r e g e n e r a l c r i t e r i a .
(6-) H e recognised t h a t a n y public discussion of a c o n t e m p l a t e d movement
in r a t e s w a s out of the question, b u t felt s u r e t h a t in p r a c t i c e any
movement in a m a j o r c u r r e n c y w o u l d be discussed b e f o r e h a n d between
the t h r e e or four m a j o r T r e a s u r i e s . I t w a s inconceivable t h a t there
would not be a m p l e w a r n i n g of a need for such a move a n d previous
discussion in the P r e s s . H e could not see the objection to p r o v i d i n g
in the rules confidential discussions w h i c h w o u l d be b o u n d to occur in
a n y case. A suggestion w a s m a d e a n d p u r s u e d by t h e A m e r i c a n s that
prior consultation should not be limited to the C h a i r m a n , b u t should
e x t e n d e i t h e r to the E x e c u t i v e C o m m i t t e e , w h i c h would be in constant
session a n d of limited m e m b e r s h i p , or to a s t a n d i n g Sub-Committee
of t h e E x e c u t i v e . T h e A m e r i c a n s a p p e a r to h a v e moved a w a y from
the idea of discussions in full session r e q u i r i n g specific m a j o r i t y votes,
b u t we did not press them to reconcile t h e i r new view w i t h the
published d r a f t rules of the s t a b i l i s a t i o n fund.
(d) W h i l e W h i t e m a i n t a i n e d t h a t confidential discussions between t h e
l e a d i n g m e m b e r s of t h e f u n d could not. give r i s e to s p e c u l a t i o n , h e
a r g u e d t h a t s p e c u l a t i o n w o u l d in p r a c t i c e be held in check by t h e
e x c h a n g e c o n t r o l s w h i c h he recognised m u s t r e m a i n in e x i s t e n c e
t h r o u g h o u t most of t h e w o r l d . H e d i s t i n g u i s h e d b e t w e e n e x c h a n g e
c o n t r o l s ancl e x c h a n g e r e s t r i c t i o n s .
Controls he envisaged as a
m a c h i n e r y of s c r u t i n y w h i c h w o u l d be m a i n t a i n e d even by c o u n t r i e s
in a s t r o n g p o s i t i o n , b u t would n o r m a l l y be a d m i n i s t e r e d w i t h t h e
g r e a t e s t possible leniency. If, however, a c o u n t r y f o u n d itself g e t t i n g
[ ? g r o u p o m i t t e d : ? i n t o ] difficulties, t h e c o n t r o l m a c h i n e r y would be
a d m i n i s t e r e d w i t h i n c r e a s i n g s t r i c t n e s s to enforce t h e n e c e s s a r y
e x c h a n g e r e s t r i c t i o n s for so long a s t h e y m i g h t be r e q u i r e d .
(c) So c r i t i c i s m w a s offered of t h e indefinite e x t e n s i o n in p o i n t of t i m e of
the unfette?'ed 10 p e r cent, d i s c r e t i o n or of a b a r e m a j o r i t y b e i n g
sufficient for t h e a p p r o v a l of changes.
5. No a t t e m p t w a s m a d e to reach conclusions.
The Americans do not
propose to give us t h e i r c o n s i d e r e d r e a c t i o n s u n t i l a f t e r they h a v e all o u r
suggestions before them.
(5. P l e a s e i n f o r m us as soon a s m a y be w h e t h e r t h e note i n my i m m e d i a t e l y
following t e l e g r a m h a s your g e n e r a l a p p r o v a l . W e hope t h a t o u r t r e a t m e n t of
objective tests goes f a r e n o u g h . T h e A m e r i c a n r e a c t i o n to these p r o p o s a l s seemed
favourable, b u t they e x p r e s s e d relief t h a t we d i d n o t a s k for precise a r i t h m e t i c a l
formulas, w h i c h would clearly h a v e m e t w i t h severe c r i t i c i s m .
From
Washington
to Foreign
Office, dated
17th
September,
1943.
(Xo. 4174. A b i d e . )
F o l l o w i n g for T r e a s u r y from K e y n e s : — My i m m e d i a t e l y p r e c e d i n g t e l e g r a m . F o l l o w i n g is t e x t lognote : — E x c h a n g e r a t e s . 1. M e m b e r s shall a g r e e not to p r o p o s e c h a n g e s in e x c h a n g e
value of t h e i r c u r r e n c y unless they consider it e s s e n t i a l to c o r r e c t i o n of f u n d a ­
mental d i s e q u i l i b r i u m i n t h e i r balance of p a y m e n t s , a n d c h a n g e s s h a l l be m a d e
only w i t h a p p r o v a l of t h e fund subject to qualifications below.
2. F u n d shall n o t w i t h h o l d its a p p r o v a l if p r o p o s e d c h a n g e inclusive of
any p r e v i o u s c h a n g e s since e s t a b l i s h m e n t of f u n d does not exceed 10 p e r cent,
w i t h l a s t ten y e a r s .
3. A c o u n t r y w h i c h h a s e x h a u s t e d its f a c i l i t i e s u n d e r 2, a n d d e s i r e s a
f u r t h e r c h a n g e in p a r value of its c u r r e n c y in t e r m s of u n i t a s shall, if possible,
e x p l a i n its reasons to f u n d b e f o r e h a n d a n d seek funcEs p r i o r a p p r o v a l .
Fund,
in g i v i n g o r w i t h h o l d i n g a p p r o v a l , shall a c t . in a c c o r d a n c e w i t h f o l l o w i n g
p r i n c i p l e s : (a) I t shall t a k e a c c o u n t of c h a n g e s in r e l a t i v e money costs of
p r o d u c t i o n in c o u n t r y m a k i n g a p p l i c a t i o n , ancl shall allow a n a p p r o p r i a t e c h a n g e
if i t a p p e a r s t h a t i n c r e a s e in r e l a t i v e costs h a s led to a n o v e r - v a l u a t i o n of
currency, (b) I t shall also t a k e i n t o a c c o u n t balance of p a y m e n t s of c o u n t r y
m a k i n g a p p l i c a t i o n w i t h r e s t of w o r l d , a n d shall allow a n a p p r o p r i a t e c h a n g e
if b a l a n c e on c u r r e n t account, t o g e t h e r w i t h i n w a r d l o n g - t e r m c a p i t a l t r a n s ­
actions, h a s ( m e a s u r e d a s a p e r c e n t a g e of its f o r e i g n t r a d e ) been seriously a d v e r s e
over a p e r i o d , or if c o u n t r y ' s r e m a i n i n g h o l d i n g of l i q u i d reserves ( m e a s u r e d a s
a p e r c e n t a g e of its q u o t a ) is i n a d e q u a t e , p r o v i d e d a l w a y s t h a t p r o p o s e d a l t e r a t i o n
in t h e e x c h a n g e seems likely to i m p r o v e position, (c) A p p l i c a t i o n by a m e m b e r
to a p p r e c i a t e i t s e x c h a n g e s shall be s i m i l a r l y c o n s i d e r e d mutatis
mutandis,
(d) T h e f u n d shall not be e n t i t l e d to refuse a c h a n g e on g r o u n d of social o r
political policies w h i c h m a y h a v e led t o s i t u a t i o n , a n d s h a l l a p p r o v e a c h a n g e
which in t h e de facto s i t u a t i o n w o u l d t e n d to restore e q u i l i b r i u m .
4. I f c i r c u m s t a n c e s a r e such t h a t i t is n o t p r a c t i c a b l e t o o b t a i n f u n d ' s p r i o r
a p p r o v a l to a c h a n g e , a m e m b e r shall be e n t i t l e d if necessary, a f t e r consulting­
c h a i r m a n , to m a k e a c h a n g e not e x c e e d i n g 10 p e r cent, w i t h o u t seeking f u n c f s
p r i o r a p p r o v a l , in w h i c h case i t shall i m m e d i a t e l y seek funcEs confirming
a p p r o v a l . I f f u n d is u n a b l e to a p p r o v e c h a n g e by a m a j o r i t y vote, the c o u n t r y
shall h a v e o p t i o n of r e v e r s i n g it ancl of c o n f o r m i n g to views of fund or shail
w i t h d r a w from m e m b e r s h i p w i t h o u t f u r t h e r notice g i v e n .
[26174]
Foreign
Office to Washington,
dated
22nd September,
1943.
(No. 6356. A b i d e . ) F o l l o w i n g f o r R e v u e s from T r e a s u r y : — Y o u r t e l e g r a m s Nos. 4173 and 4174 [ E x c h a n g e R a t e s ] .
1. It is not clear from p a r a g r a p h s 4 and 6 of 4173 w h e t h e r Americans
d i s l i k e the objective c r i t e r i a suggested by you, which seems to us on sound lines,
o r the p r i n c i p l e of an a p p e a l to objective d a t a as justification for altering
e x c h a n g e s in place of reliance upon collective j u d g m e n t of executive committee!
B u t in e i t h e r case t h e i r present a t t i t u d e u n d e r r a t e s difficulty of p e r s u a d i n g
P a r l i a m e n t t h a t in an i n s t r u m e n t w h i c h is to have s o m e t h i n g of the s a n c t i t y of
a T r e a t y t h e G o v e r n m e n t should s u r r e n d e r the r i g h t to p r o t e c t e m p l o y m e n t by
e x c h a n g e a d j u s t m e n t , which is r e g a r d e d in m a n y q u a r t e r s as a p p r o p r i a t e
defensive a c t i o n . S i m i l a r point is bound to be r a i s e d by o t h e r c o u n t r i e s such as
H o l l a n d , B e l g i u m . F r a n c e a n d L a t i n A m e r i c a n c o u n t r i e s , a n d w e should have
e x p e c t e d C o n g r e s s also to take it. I f t h e m a i n clause d e a l i n g w i t h e x c h a n g e rates
w e r e to be too r i g i d , t h e r e would be a risk of insistence or g r e a t e m p h a s i s on
escape provision or t h a t acceptance would be subject to undisclosed reservations.
N e i t h e r s i t u a t i o n would be s a t i s f a c t o r y as we t h i n k you will a g r e e that
g e n u i n e n e s s o f a p p r o a c h is essential to t h i s p a r t of proposed i n t e r n a t i o n a l set-up.
2. A t p r e s e n t t e n t a t i v e s t a g e of discussions i n s t r u c t i o n s to you are
u n d e s i r a b l e , b u t you ought to know our reaction to A m e r i c a n a t t i t u d e as \vt:
u n d e r s t a n d it from your t e l e g r a m s .
3. T h e r e is a n obvious r e l a t i o n between the clause d e a l i n g with exchange
a d j u s t m e n t s a n d t h e general form of the whole scheme. T h e present published
A m e r i c a n scheme may r e m a i n in the b a c k g r o u n d of y o u r present discussions, but
we assume t h a t it still is in existence. I t could be r e p r e s e n t e d as h a v i n g the
a p p e a r a n c e of a gold s t a n d a r d scheme, and precise e x c h a n g e obligation in such
a scheme would be r e g a r d e d as t y i n g us to a gold s t a n d a r d dollar.
4. I t is not clear from p a r a g r a p h 10 of your A b i d e 4125 at w h a t da its
a n d by w h a t s t a g e s a f t e r the w a r t h e scheme is to come i n t o o p e r a t i o n .
The
r a n g e of e x c h a n g e a d j u s t m e n t s w h i c h is permissible could be m u c h m o r e easily
seen when we k n o w s o m e t h i n g about t h e relative levels of prices a n d production
costs t h a t will follow upon the early u n s e t t l e d p o s t - w a r period. Several E u r o p e a n s
h a v e e x p r e s s e d v i e w t h a t i n i t i a l e x c h a n g e rates would have to be e x p e r i m e n t a l
W e a g r e e w i t h t h i s , a n d in such c i r c u m s t a n c e s precise definition of r a n g e s of
a d j u s t m e n t seems to us u n w i s e a t t h i s s t a g e .
5. The r e a l i t y of the conditions u n d e r which c o n s u l t a t i o n w o u l d be conducted
m u s t be a p p r e c i a t e d by W h i t e . I t is t r u e t h a t in c o u n t r i e s w h i c h r e t a i n exchange
control the d r a i n i n g a w a y of resources w h i c h n o r m a l l y precedes exchange
a d j u s t m e n t could to a considerable e x t e n t be checked.
B u t if s i t u a t i o n is
developing w h e r e a m a j o r a d j u s t m e n t of e x c h a n g e r a t e s is on the h o r i z o n exchange
control would soon show itself an i m p e r f e c t i n s t r u m e n t .
I n such a s i t u a t i o n
c o n s u l t a t i o n w o u l d have to be v e r y speedy a n d v e r y confidential. So long as the
c e n t r a l m o n e t a r y a u t h o r i t y is not m a n i f e s t l y d i s t u r b e d , e x c h a n g e values could
be reasonably held w i t h t h e h e l p of e x c h a n g e control. B u t once it leaks out that
discussions a r e p r o c e e d i n g w h i c h would be likely to lead to an exchange
a d j u s t m e n t of significance, p r e s s u r e u p o n e x c h a n g e v a l u e would become
insistent.
Moreover, W h i t e ' s idea seems to us to p r e s u p p o s e free dealings
even in c u r r e n c i e s w h i c h a r e subject to control, a n d a n y m a j o r c u r r e n c y would
t h e r e f o r e be open t o a t t a c k d u r i n g c o n s u l t a t i o n . W e t h i n k it would be wiser
for t h e m o m e n t to p u t aside d e t a i l e d definitions a n d to be c o n t e n t w i t h a clause
by w h i c h m e m b e r c o u n t r i e s a g r e e not to m a k e c h a n g e s in t h e e x c h a n g e value of
t h e i r c u r r e n c y unless they consider it essential to correction of f u n d a m e n t a l
d i s e q u i l i b r i u m in t h e i r balance of p a y m e n t s , a n d then only a f t e r consultation
w i t h t h e a p p r o p r i a t e committee of t h e B o a r d . W e should h o p e u n d e r t a k i n g s to
consult would lie m o r e effective in p r a c t i c e t h a n o b l i g a t i o n to obtain formal
a p p r o v a l . Moreover, we believe t h a t a t t h i s s t a g e it would n o t be p r a c t i c a b l e to
obtain a g r e e m e n t t h a t changes should be subject to a p p r o v a l by any system of
v o t i n g of t h e g o v e r n i n g body. T h e clause could also h a v e a d e s c r i p t i v e s t a t e m e n t
of the objective c o n d i t i o n s t h a t m i g h t c o n s t i t u t e evidence of the f u n d a m e n t a l
d i s e q u i l i b r i u m on t h e lines of p a r a g r a p h 3 of y o u r 4174.
6. W e are in g e n e r a l a g r e e m e n t w i t h t h e idea in (c) of p a r a g r a p h 4 of 4173
that in t h e u l t i m a t e a n a l y s i s all t h e issues involved in the whole scheme will r e s t
upon the j u d g m e n t a n d competence of t h e m a n a g e m e n t of t h e scheme. W e suggest
that it is n o t inconsistent w i t h t h i s view t h a t , for t h e s t a r t i n g p e r i o d , we should
be c o n t e n t with a firm s t a t e m e n t of a d h e r e n c e to t h e p r i n c i p l e of e x c h a n g e
stability a n d a g r e e m e n t to consult before m a k i n g c h a n g e .
A s the s i t u a t i o n
develops t h e m a n a g e m e n t would d o u b t l e s s be able to e l a b o r a t e closer definitions
to which member S l a t e s would be w i l l i n g to a g r e e .
7. P a r a g r a p h 5 of your 4173. Y o u a n d your colleagues m u s t be j u d g e s of
the development of tactics in the discussions, but we do n o t w a n t to slide i n t o a
position in which each suggestion we m a k e is p u t f o r w a r d i n d e t a i l a p a r t from
o-eneral c o n s i d e r a t i o n of the whole scheme, so t h a t the A m e r i c a n s m a y a t t e m p t to
dispose of each one s e p a r a t e l y w i t h o u t p r o p e r r e g a r d to t h e s h a p e of the scheme
as a whole. You a r e fully a w a r e of t h i s , a n d we m e n t i o n the p o i n t only because
your e x p r e s s reference to us of t h e problem of e x c h a n g e r a t e s h a s come r a t h e r
in isolation.
From
Washington
to Foreign
Office, dated
23rd September,
1943.
(No. 4274. Abide.)
Following for T r e a s u r y from K e y n e s :—
Your t e l e g r a m No. 6356.
i n d i c a t i o n s a r e t h a t t h e A m e r i c a n s will accept, s u b j e c t to only m i n o r
modifications to the p r i n c i p l e s l a i d d o w n in p a r a g r a p h 3 of my 4174. W h a t t h e y
disliked w a s any a t t e m p t to m a k e these c r i t e r i a a r i t h m e t i c a l l y precise, a view
with which we h a v e c o n s i d e r a b l e s y m p a t h y .
2. W e are not overlooking t h e c o n s i d e r a t i o n u r g e d
W h i t e h a s now h a d all our s u b s t a n t i a l p r o p o s a l s a n d the
had them by t o m o r r o w . W e will e m p h a s i s e a g a i n t h a t
in our m i n d s a n d difficulty a b o u t a n y one of them m i g h t
other p o i n t s , since each of o u r d e t a i l e d s u g g e s t i o n s h a s to
of our s u g g e s t i o n s as a whole.
in y o u r p a r a g r a p h 3.
J o i n t G r o u p will have
t h e y all h a n g t o g e t h e r
have r e p e r c u s s i o n s on
t a k e in t h e f r a m e w o r k
3. Y o u r p a r a g r a p h 4, w h i c h h a s a r r i v e d possibly c o r r u p t . W e felt t h a t the
difficulties of the i n i t i a l p e r i o d w o u l d be sufficiently m e t by u n q u a l i f i e d d i s c r e t i o n
to make 10 p e r cent, c h a n g e . O u r p r o p o s a l s , however, w e r e m a i n l y concerned w i t h
longer t e r m . W e m i g h t s t r e n g t h e n t h e provision r e l a t i n g to t h e e a r l y p e r i o d
with a clause s i m i l a r to the c o n c l u d i n g p a s s a g e of C l e a r i n g U n i o n 6 (3).
4. W e a r e n o t clear how f a r t h e last s e n t e n c e b u t t h r e e of y o u r p a r a g r a p h 5,
in c o n j u n c t i o n w i t h your p a r a g r a p h 6, qualifies r e a d i n e s s to a c c e p t d r a f t p r o p o s a l s
in my 4174. Our latest impression is t h a t the A m e r i c a n s w i l l a c c e p t t h e whole
of these p r o p o s a l s subject only to m i n o r modifications. T h e above sentence of
your p a r a g r a p h 5 would m o d i f y p a r a g r a p h 4 of my 4174 i n t w o r e s p e c t s .
It
would allow [ g r o u p u n d e c y p h e r a b l e ] t h e r i g h t of a c t i o n to t h e F u n d if i t s a d v i c e
is d i s r e g a r d e d a n d would a p p l y u n i l a t e r a l c h a n g e s of a n y size. I t w o u l d be
a very d r a s t i c c h a n g e to p r o p o s e t h a t every c o u n t r y s h o u l d be free to m a k e
unlimited u n i l a t e r a l a l t e r a t i o n s in its e x c h a n g e merely a f t e r c o n s u l t a t i o n .
All
of us h e r e t h i n k t h a t the p r o p o s a l s of 4174 give sufficient e l a s t i c i t y a n d
independence a n d would be s o r r y t o h a v e to go back so completely on the i d e a of
having some definite rules to p r e s e r v e e x c h a n g e s t a b i l i t y . O u r d r a f t a l r e a d y
preserves an u l t i m a t e freedom of a c t i o n to [ g r o u p u n d e c y p h e r a b l e : ? e v e r y ]
member. P l e a s e let us know very u r g e n t l y if we a r e to w i t h d r a w t h e p r o p o s a l s
of my 4174, w h i c h , unless we have m i s u n d e r s t o o d your t e l e g r a m u n d e r reference,
seems to u s m o r e in c o n f o r m i t y w i t h t h e C a b i n e t d i r e c t i v e . I f w e a r e to w i t h d r a w
them wc should n o t delay in d o i n g so. W e fear t h e effect of w i t h d r a w a l on
discussion as a whole, w h i c h is e x c e e d i n g l y s a t i s f a c t o r y .
W h i t e has indicated
to me p r i v a t e l y t h a t in the l a s t r e s o r t h e w o u l d n o t r e s i s t a n y of o u r f u n d a m e n t a l
principles as so f a r p r o p o u n d e d to h i m , p r o v i d e d t h a t we a r e successful in
p e r s u a d i n g his colleagues.
From
Washington
to Foreign
Office, dated
23rd September,
1943.
(No. 4275. Abide.)
My immediately preceding-telegram.
F o l l o w i n g from W a l e y : —
W i t h the permission of Keynes I would like to set out my views.
w i t h the C a b i n e t i n s t r u c t i o n s we h a v e —
T o comply
(a) T o avoid being forced to deflate if H i s M a j e s t y ' s G o v e r n m e n t should at
any time t h i n k , r i g h t l y or wrongly, t h a t it would be better to
d e p r e c i a t e a n d t h a t t h i s would avoid deflation.
(b) T o prevent o t h e r c o u n t r i e s d e p r e c i a t i n g for c o m p e t i t i v e reasons on the
p r e t e x t that this would correct a d i s e q u i l i b r i u m when by some test as
objective as possible it could be shown t h a t t h i s p r e t e x t w a s not
justified.
(c) T o avoid bear s p e c u l a t i o n which would be caused by formal consultation
w i t h fund b e f o r e h a n d .
It seemed to me t h a t on the wdiole our
p r o p o s a l s met all t h r e e p o i n t s .
A . A p a r t from special l a t i t u d e w h i c h m i g h t be necessary in t h e immediate
p o s t - w a r p e r i o d , it seems to me t h a t it will be a very i m p o r t a n t achievement if
we can secure freedom to d e p r e c i a t e to t h e e x t e n t of 10 p e r cent, u n i l a t e r a l l y .
B . Obstacles to f u r t h e r d e p r e c i a t i o n w i t h o u t real justification seems to me
as effective and as objective as could be hoped.
C. A r r a n g e m e n t s for m a k i n g c h a n g e s w i t h o u t c o n s u l t i n g the fund before­
h a n d seems to me to avoid t h e d a n g e r of bear s p e c u l a t i o n .
2
I am s u r p r i s e d to find so little e m p h a s i s in your t e l e g r a m on the danger
of d e p r e c i a t i o n by o t h e r c o u n t r i e s for i n a d e q u a t e reasons. At first r e a d i n g the
p r o m i s e to d e p r e c i a t e only in o r d e r to correct d i s e q u i l i b r i u m , and then only after
c o n s u l t a t i o n , seems more a t t r a c t i v e t h a n o u r p r o p o s a l from the p o i n t of view of
a v o i d i n g a n y a p p e a r a n c e of a g a i n c r u c i f y i n g ourselves on the cross of gold or
s u b m i t t i n g our affairs to the decision of an u n t r i e d i n t e r n a t i o n a l body. But I
t h i n k t h a t this a p p e a r a n c e is to some e x t e n t deceptive. In p r a c t i c e in view of
o u r position in the w o r l d a n d our i n t i m a t e r e l a t i o n s w i t h the U n i t e d States, it
will be very difficult indeed for us to d e p r e c i a t e unless the c o m m i t t e e of the fund
a p p r o v e . I t will be f a r e a s i e r for m a n y other c o u n t r i e s to d i s r e g a r d the advice
of t h e fund.
:
3. T h e prospect t h a t t h e A m e r i c a n s will a g r e e to the t e r m s of t h e proposals
t a k e n as a whole a p p e a r s u n e x p e c t e d l y favourable. T h i s p a r t i c u l a r p o i n t must
be j u d g e d a g a i n s t t h a t of t h e general b a c k g r o u n d . T a k i n g a severelv practical
p o i n t of view, o u r p r o p o s a l s give us completely free h a n d to d e p r e c i a t e to the
e x t e n t of 10 per cent, a n d a n o t h e r 10 p e r cent, w i t h o u t t h e necessity of securing
c o m m i t t e e ' s a p p r o v a l w h i l s t l a y i n g down s a t i s f a c t o r y rules on c i r c u m s t a n c e s in
w h i c h c o u n t r i e s should or should not be allowed to d e p r e c i a t e f u r t h e r .
Your
p r o p o s a l in p r a c t i c e m i g h t well m e a n t h a t we could never d e p r e c i a t e at all
w i t h o u t o b t a i n i n g p r i o r a p p r o v a l of t h e fund or i t s c o m m i t t e e w h i l s t o t h e r s will
feel less e m b a r r a s s m e n t in a c t i n g a g a i n s t the w i s h e s of t h e f u n d .
4. E v e n if you a r e not a t all convinced by these a r g u m e n t s the position
probably is t h a t we m a y h a v e the choice of some i n t e r n a t i o n a l m o n e t a r y arrange­
ment on lines of o u r p r e s e n t p r o p o s a l s or no i n t e r n a t i o n a l m o n e t a r y a r r a n g e m e n t
at all. T h e general view a m o n g the A m e r i c a n s h e r e is t h a t if we fail to reach
a g r e e m e n t on m o n e t a r y a r r a n g e m e n t s t h e r e is much less c h a n c e of r e a c h i n g any
definite u n d e r s t a n d i n g a b o u t commercial policy, in which field t h e r e is also an
u n e x p e c t e d l y l a r g e m e a s u r e of a g r e e m e n t between A m e r i c a n views a n d those of
H i s Majesty's Government.
APPENDIX
To
(
B.
Washington.
(Abide 4274 a n d 4275.)
1. Question has been considered by M i n i s t e r s . W h i l e p r e s e n t discussions
are, and r e m a i n , non-committal so f a r as G o v e r n m e n t is concerned, you would
wish w h e n i m p o r t a n t issues define themselves to k n o w w h a t M i n i s t e r s believe
P a r l i a m e n t w o u l d accept.
Moreover, c i r c u m s t a n c e s o u t of w h i c h p r e s e n t
discussions arose p u t u p o n us some r e s p o n s i b i l i t y for c o n s i d e r i n g p o s i t i o n of
other c o u n t r i e s . W e do not w a n t s i t u a t i o n to develop w h e r e we a n d A m e r i c a n s
are expected to r a i l r o a d an a g r e e m e n t t h r o u g h r e l u c t a n t U n i t e d N a t i o n s .
2. W e a p p r e c i a t e fully the i n t e n t i o n of your p r o p o s a l s in 4174 t h a t each
country should h a v e l i m i t e d u n i l a t e r a l r i g h t s g i v i n g reasonable flexibility, but
that u n i l a t e r a l r i g h t s should not lead to unchecked i r r e s p o n s i b i l i t y .
8. T h e two issues raised by y o u r p r o p o s a l s a r e w h e t h e r p r o p o s e d rules a r e
suitable and w h e t h e r p r o c e d u r e of a p p r o v a l or c o n s u l t a t i o n is to be p r e f e r r e d .
4. B u t t h e r e is a t h i r d issue : W h e t h e r t h e r e should not be clear d i s t i n c t i o n
between rules a n d p r o c e d u r e a p p r o p r i a t e to t r a n s i t i o n a l p o s t - w a r p e r i o d a n d
those a p p r o p r i a t e to l a t e r position.
5. I t is g e n e r a l l y agreed t h a t for m a n y c o u n t r i e s i n i t i a l p o s t - w a r r a t e s
must, be e x p e r i m e n t a l . Revised S t a b i l i s a t i o n F u n d scheme recognised problem
of liberated t e r r i t o r i e s , a n d C l e a r i n g U n i o n scheme recognises difficulties of
transitional period.
W e t h i n k it q u i t e p r e m a t u r e to e s t i m a t e n o w w h e t h e r
permissible r a n g e of 10 p e r cent, will meet i n e v i t a b l e a d j u s t m e n t s of e x p e r i m e n t a l
rates. I f any such figure were inserted a t t h i s s t a g e it would have to be
surrounded by n u m e r o u s qualifications for l i b e r a t e d t e r r i t o r i e s a n d o t h e r
problems a n d t h e quoted p e r c e n t a g e would have l i t t l e real m e a n i n g .
The
instrument c r e a t i n g the c u r r e n c y o r g a n i s a t i o n is to h a v e s o m e t h i n g of the s a n c t i t y
of a T r e a t y a n d all c o n d i t i o n s bound to p r e c i s e figures w o u l d need to be looked
ai very closely in o r d e r to m a k e sure t h a t t h e figure w o u l d s t a n d u p to u n e x p e c t e d
developments. C h a n g e of a n y figure in t h e i n s t r u m e n t m i g h t obviously involve
complicated and l o n g - d r a w n - o u t p r o c e d u r e .
6. W h i l e we a g r e e t h a t as between ourselves and U n i t e d S t a t e s the p r a c t i c a l
difference between c o n s u l t a t i o n w i t h the B o a r d a n d a p p r o v a l of t h e B o a r d is
qualified by a r g u m e n t in p a r a g r a p h 2 of 4275, t h e difference in form between
consultation and a p p r o v a l is real. W e c a n n o t yet k n o w t h e size of the B o a r d or
the c o n s t i t u t i o n t h a t will emerge. A p p r o v a l m u s t c o n t e m p l a t e possibilities of
difference of o p i n i o n on B o a r d , a n d t h e r e f o r e m u s t p r o v i d e v o t i n g p r o c e d u r e .
Quite a p a r t from our belief, w h i c h w e k n o w you s h a r e , t h a t i m p o r t a n t business
of the B o a r d c a n n o t really be conducted by voting, all q u e s t i o n s of v o t i n g on t h i s
matter will r a i s e P a r l i a m e n t a r y difficulties, a n d also p r o b a b l y difficulties w i t h
other countries. M o s t c o u n t r i e s h a v e recollections of decisive v o t i n g influence a t
Geneva of c o u n t r i e s often remotely concerned w i t h effect of issues before m a n y
League C o m m i t t e e s .
7. T h e t h i r d issue m e n t i o n e d in p a r a g r a p h 4 r a i s e s question w h e n it is
hoped t h a t i n t e r n a t i o n a l currency o r g a n i s a t i o n m i g h t be in o p e r a t i o n . D e s p i t e
obvious difficulties we believe t h a i it is h i g h l y d e s i r a b l e t h a t o r g a n i s a t i o n should
be in existence a s e a r l y as possible in the t r a n s i t i o n a l p e r i o d a n d should be able
to gain e x p e r i e n c e a n d exercise influence i n t h e difficulties of t h a t p e r i o d . T h i s ,
in our j u d g m e n t , p r o b a b l y e n t a i l s s e t t i n g B o a r d u p w i t h l i m i t e d powers of formal
approval b u t w i t h w i d e and g r o w i n g p o w e r s of influence, l e a v i n g the B o a r d as
it gains e x p e r i e n c e on this difficult t e r r i t o r y to develop more precise rules. I f
the Board acts wisely and c a u t i o u s l y it w i l l g a i n g e n e r a l a c c e p t a n c e a n d i t s
position will become very s t r o n g . W e do not believe t h a t its position will be m a d e
any stronger by p r e m a t u r e g r a n t to it of specific p o w e r s of detailed a p p r o v a l
and d i s a p p r o v a l .
8. I n the l i g h t of the foregoing we r e s t a t e for you t h e views we should w i s h
you to u r g e s t r o n g l y upon the A m e r i c a n r e p r e s e n t a t i v e s :—
(a) T h e r e should be definite a g r e e m e n t to a c c e p t s t a b i l i t y of e x c h a n g e s as
f o u n d a t i o n of i n t e r n a t i o n a l economic r e l a t i o n s .
(b) E x c h a n g e a d j u s t m e n t should be in a c c o r d a n c e w i t h objective p r i n c i p l e s .
W e a g r e e w i t h A m e r i c a n view t h a t precise m a t h e m a t i c a l tests are
p r o b a b l y i m p r a c t i c a b l e a n d c e r t a i n l y p r e m a t u r e a t this stage. You
will recognise difficulty of p r o v i d i n g u n c h a l l e n g e a b l e d a t a on balance
of p a y m e n t s even w i t h our own e l a b o r a t e t e c h n i q u e of exchange
control. W e like the objective p r i n c i p l e s in y o u r 4174 a n d t h i n k they
could well be e n s h r i n e d i n t e x t of i n s t r u m e n t .
(c) W e should w i s h to see B o a r d in e x i s t e n c e a s e a r l y a s possible after
t e r m i n a t i o n of h o s t i l i t i e s a n d able to exercise influence upon the
problem of e x c h a n g e s in t r a n s i t i o n a l p e r i o d .
(d) T h e r e should be a g r e e m e n t in t h e i n s t r u m e n t t h a t no a d j u s t m e n t of
e x c h a n g e r a t e s shall be m a d e e x c e p t a f t e r c o n s u l t a t i o n w i t h t h e Board,
t h o u g h n o t subject to the B o a r d ' s a p p r o v a l .
I t is for discussion
w h e t h e r t h e i n i t i a l e x c h a n g e r a t e s fixed should be subject to consulta­
tion w i t h t h e B o a r d or only s u b j e c t to notification. W e would have
no objection to c o n s u l t a t i o n , t h o u g h i t w o u l d h a v e to be recognised that
the views of the member c o u n t r i e s on t h e e x p e r i m e n t a l r a t e s would
n o r m a l l y h a v e to be accepted. W e w o u l d m u c h r a t h e r i n t r o d u c e the
d o c t r i n e of c o n s u l t a t i o n from t h e b e g i n n i n g t h a n a m a t h e m a t i c a l
r a n g e of a d j u s t m e n t allowed w i t h o u t c o n s u l t a t i o n .
9. A t the conclusion of 5 y e a r s from the s e t t i n g u p of the B o a r d or a t such
e a r l i e r period as m i g h t be a g r e e d u p o n by t h e m e m b e r c o u n t r i e s , the B o a r d should
be r e q u i r e d to f o r m u l a t e for c o n s i d e r a t i o n by m e m b e r c o u n t r i e s r u l e s governing
p r o c e d u r e for a d j u s t m e n t of exchanges. A t t h a t s t a g e it m i g h t well be possible
to i n t r o d u c e r a n g e s of a d j u s t m e n t such a s you c o n t e m p l a t e , ancl c e r t a i n l y it might
be p r a c t i c a b l e to p r o v i d e for more f o r m a l a p p r o v a l by t h e B o a r d if satisfactory
p r o c e d u r e for r a p i d action could be evolved.
10. W e hope you will not feel t h a t t h i s a p p r o a c h to a crucial problem
involves a w i t h d r a w a l from t h e t e n t a t i v e p r o p o s a l s in 4174 w h i c h would embarrass
you in y o u r discussions. You will see t h a t w e h a v e t r i e d to p u t o u r policy in a
p o s i t i v e m a n n e r w h i c h you could u r g e u p o n t h e A m e r i c a n r e p r e s e n t a t i v e s . On
these lines we believe we could c a r r y influential o p i n i o n not confined to this
country.