T H I S D O C U M E N T I S T H E P R O P E R T Y OP H I S B R I T A N N I C M A J E S T Y ' S G O V E R N M E N T
Printed
for
the Cabinet.
July
1949
T h e c i r c u l a t i o n of t h i s p a p e r has been s t r i c t l y limited.
.^.^..M.^^^..&A^rk^:....
for t h e personal use of
TOP
C P .
It is issued
^/.7.
SECRET
( 4 9 )
21st July,
Copy No.
158
1949
CABINET
THE
DOLLAR
SITUATION
M E M O R A N D U M BY THE P R I M E M I N I S T E R
I n E . P . C . (49) 66 of 2 2 n d J u n e the Chancellor of the E x c h e q u e r gave a n
a n a l y s i s of t h e d o l l a r p o s i t i o n on t h e basis of such i n f o r m a t i o n a s w a s available
a t t h e time.
i.
..
2. I f e e l t h a t my colleagues should h a v e a n o p p o r t u n i t y of c o n s i d e r i n g t h e
l a t e s t i n f o r m a t i o n n o w available. T h e m a i n facts a r e as follows:—­
3. The Reserves.—-Our
reserves of gold a n d U n i t e d S t a t e s a n d C a n a d i a n
d o l l a r s a t 30th J u n e a m o u n t e d to £ 4 0 6 million c o m p a r e d w i t h £ 4 7 1 million a t
1st A p r i l , r e p r e s e n t i n g a decrease of £ 6 5 million d u r i n g t h e second q u a r t e r . T h e
decrease would, in fact, h a v e been m u c h l a r g e r b u t "for the receipt i n t h e closing
d a y s of J u n e of considerable sums of money i n t h e s h a p e of r e i m b u r s e m e n t s from
t h e Economic C o - o p e r a t i o n A d m i n i s t r a t i o n of e x p e n d i t u r e a l r e a d y i n c u r r e d by
us. These l a r g e r e c e i p t s w e r e t h e r e s u l t of special m e a s u r e s t a k e n by o u r r e p r e ­
sentatives i n W a s h i n g t o n t o reduce t h e a m o u n t s still owing to us by E . C . A .
a n d they h a v e been followed by a s h a r p r e d u c t i o n i n f u r t h e r r e i m b u r s e m e n t s since
t h e b e g i n n i n g of J u l y . A s a result of t h i s a n d of t h e c o n t i n u e d heavy gold a n d
d o l l a r deficit, o u r reserves h a v e c o n t i n u e d t o decline r a p i d l y a n d by 20th J u l y
h a d fallen to £ 3 7 2 million. I n o t h e r w o r d s ; t h e y h a v e fallen by £ 2 1 million
in a b o u t half a m o n t h or a t a r a t e of over £ 1 2 0 million a q u a r t e r .
4 / E.R.P. Receipts.—E.R.P.
a i d i n all forms d u r i n g t h e second q u a r t e r
a m o u n t e d to £ 8 5 million ( i n c l u d i n g £ 8 million received by the I r i s h Republic)
c o m p a r e d w i t h £ 8 1 million i n the first q u a r t e r . B u t for the heavy reimbursements­
a l r e a d y mentioned, t h e figure would have been a good deal less t h a n in the first
q u a r t e r . I t is not possible t o forecast w i t h a n y accuracy w h a t the t o t a l E . R . P .
assistance i n the t h i r d q u a r t e r is likely to be, b u t i t can h a r d l v be m u c h i n excess
of £ 7 0 million.
5. Gold and Dollar Deficit.—The
the second q u a r t e r w e r e as follows : —
m o n t h l y g o l d . a n d dollar deficits d u r i n g
$
April
May
June
...
...
...
...
...
...
...
...
million
149
228
255
632
(or £ 1 5 7 million)
T h e figure of £ 1 5 7 million is to be c o m p a r e d w i t h t h e following q u a r t e r l y deficits
since E . R . P . b e g a n a t t h e b e g i n n i n g of A p r i l , 1948 : £ 1 0 7 million, £ 7 6 million,
£ 9 3 million, £ 8 2 million.
37302
T-'S'**--
31
6.
T h e course of t h e deficit i n recent weeks i s shown below :—
$
million
Week ending
.
4th June
11th J u n e
...
-on
18th J u n e
?l'fi
25th June
'i ^
2nd July
68-b
9th July
...
1
1 6 t h J u l y (provisional)
T h e p r e s e n t week ( e n d i n g 2 3 r d J u l y ) w i l l be a heavy one, as we shall have to
p a y f 18 million t o B e l g i u m a n d $ 1 1 million to S w i t z e r l a n d for t h e settlement of
t h e s t e r l i n g a r e a deficits w i t h these c o u n t r i e s i n J u n e .
v
7. T h e deficit is still, therefore, r u n n i n g a t t h e r a t e of over $ 5 0 million a
week w h i c h is e q u i v a l e n t to over £ 6 0 0 million a year. A t t h i s r a t e , even if we
assume t h a t we a r e allotted over £ 2 0 0 million in E . R . P . assistance d u r i n g 1949-50
a n d can continue to d r a w on the C a n a d i a n C r e d i t on the same scale as recently
(i.e., $10 million a m o n t h ) , t h e whole of o u r r e m a i n i n g reserves would d i s a p p e a r
w i t h i n about a y e a r .
8. Some p r o v i s i o n a l d e t a i l s of the m a k e - u p of t h e s t e r l i n g a r e a gold a n d
d o l l a r deficit i n the second q u a r t e r have been compiled a n d a r e shown i n the
A p p e n d i x , t o g e t h e r w i t h figures for the first q u a r t e r a n d t h e forecasts for the
second q u a r t e r w h i c h w e r e ' m a d e early i n A p r i l .
9. These e s t i m a t e s show t h a t t h o u g h U n i t e d K i n g d o m p u r c h a s e s i n the
U n i t e d S t a t e s w e r e l a r g e r i n the second q u a r t e r t h a n i n the first, they fell a good
d e a l short of t h e o r i g i n a l forecasts. T h i s w a s d u e p a r t l y to lack of a v a i l a b i l i t y
of some items a n d p a r t l y to action w h i c h w a s t a k e n to cancel p u r c h a s e s d u r i n g
the quarter.
10. U n i t e d K i n g d o m e x p o r t proceeds were n o t very m u c h less t h a n i n the
first q u a r t e r , b u t very s u b s t a n t i a l l y below w h a t w a s expected.
I t should be
n o t e d t h a t since the figures given r e l a t e to e x p o r t proceeds they do n o t fully reflect
t h e reduction i n a c t u a l s h i p m e n t s to the U n i t e d S t a t e s w h i c h h a s t a k e n place.
These continue to decline. I n J u n e they were only £ 3 - 0 million c o m p a r e d w i t h
£ 3 - 7 million i n May, £ 3 - 4 million i n A p r i l a n d a m o n t h l y a v e r a g e of £ 5 - 8 million
i n the first q u a r t e r . E x p o r t s to C a n a d a were also lower i n J u n e t h a n i n May,
b u t very little less i n the second t h a n i n the first q u a r t e r as a whole. I t is too
soon to say w h e t h e r the d r o p i n J u n e denotes t h e b e g i n n i n g of a n e w d o w n w a r d
t r e n d a n d we shall h a v e to w a t c h subsequent figures w i t h g r e a t care.
11. D u r i n g the second q u a r t e r , t h e r e w a s a s h a r p d e t e r i o r a t i o n i n the
p o s i t i o n of t h e d o l l a r invisibles. T h i s is p a r t l y the r e s u l t of u n e x p e c t e d l y heavy
e x p e n d i t u r e on c e r t a i n items, such as d i v i d e n d t r a n s f e r s a n d t h e o u t l a y s of B r i t i s h
oil companies. T h e r e w a s also a r e d u c t i o n i n o u r receipts f r o m oil sales. F i n a l l y ,
a l a r g e conversion of A m e r i c a n s t e r l i n g balances took p l a c e i n A p r i l a n d is
reflected in t h e figures. Since A p r i l , however, these balances a p p e a r to have been
reasonably stable.
12. D e p e n d e n t overseas t e r r i t o r i e s (D.O.T.s) a n d t h e countries in the
i n d e p e n d e n t r e s t of the s t e r l i n g a r e a (R.S.A.) all f a r e d worse i n the second
q u a r t e r i n c o m p a r i s o n both w i t h the first q u a r t e r a n d w i t h o u r e a r l i e r expecta­
t i o n s of the second. A s f a r as t h e D . O . T s . a r e concerned, t h i s w a s t h e r e s u l t
p r i m a r i l y of a s h a r p reduction i n U n i t e d S t a t e s p u r c h a s e s of rubber, cocoa a n d
t i n . R e c e i p t s from all colonial e x p o r t s t o the U n i t e d S t a t e s i n t h e second q u a r t e r
a r e provisionally e s t i m a t e d a t $ 6 4 million c o m p a r e d w i t h $ 1 1 5 million in the
first q u a r t e r . T h e increased deficit of the i n d e p e n d e n t R . S . A . countries w i t h
t h e U n i t e d S t a t e s i s also, i n p a r t , the result of lower income, p a r t i c u l a r l y from
sales of wool a n d j u t e . B u t some i n c r e a s e i n e x p e n d i t u r e h a s also t a k e n place,
p a r t i c u l a r l y by P a k i s t a n .
13. O u r settlements w i t h S w i t z e r l a n d a n d B e l g i u m w e r e m u c h heavier t h a n
i n t h e first q u a r t e r , a n d l a r g e p a y m e n t s will also have t o be m a d e to both t h i s
m o n t h . T h e r e is n o evidence a t the m o m e n t t h a t the p o s i t i o n w i t h r e g a r d to
these c o u n t r i e s is i m p r o v i n g , a n d a l t h o u g h t h e n e w i n t r a - E u r o p e a n p a y m e n t s
scheme in 1 9 4 9 - 5 0 should reduce the d r a i n t o Belgium, a n y excess i n o u r deficit
over t h a t a g r e e d between us in a d v a n c e will still have to be met i n gold.
89
3
1 4 . O u r gold losses to other countries, p a r t i c u l a r l y P e r s i a , w e r e lower i n
t h e second q u a r t e r t h a n i n t h e first a n d even lower t h a n we h a d expected.
But
there is no r e a s o n to believe t h a t t h i s is more t h a n a t e m p o r a r y r e s p i t e . I n J u n e
the P e r s i a n loss h a d a g a i n i n c r e a s e d t o about $ 1 0 million.
1 5 . T h e above facts b r i n g t h e story of our gold a n d d o l l a r position a s u p
to d a t e as possible. A l l the evidence suggests t h a t e x p e n d i t u r e both by t h e
U n i t e d K i n g d o m a n d the r e s t of t h e s t e r l i n g a r e a is still on a heavy scale, a n d t h a t
some t i m e m u s t elapse before t h e m e a s u r e s t a k e n here a n d those recommended t o
other C o m m o n w e a l t h G o v e r n m e n t s as t h e result of the F i n a n c e M i n i s t e r s ' M e e t i n g
can begin to t a k e effect. M e a n w h i l e t h e r e a r e few signs of a n y recovery i n our
dollar income ( a p a r t from a r e s u m p t i o n of U n i t e d S t a t e s p u r c h a s e s of t i n t o w a r d s
the end of J u n e , w h i c h is t h e only favourable development t h a t c a n be r e p o r t e d ) .
Gold a n d d o l l a r settlements to n o n - d o l l a r countries a r e likely to r e m a i n h i g h , a t
least u n t i l t h e a r r a n g e m e n t s w i t h B e l g i u m come into o p e r a t i o n .
1 6 . T h e general conclusion, therefore, m u s t be t h a t for some t i m e a h e a d the
c u r r e n t heavy deficit is likely to c o n t i n u e a n d w i t h i t a c o n t i n u e d d r a i n on the
gold a n d d o l l a r reserves. I t is impossible a t t h i s s t a g e to forecast w i t h a n y
assurance w h a t the e x t e n t of t h i s d r a i n is likely to be over the n e x t m o n t h or two.
B u t i t would be over-optimistic to h o p e t h a t our reserves a t t h e e n d of the c u r r e n t
q u a r t e r will s t a n d much above £ 3 0 0 million.
C. R. A .
1 0 Downing Street, S. W.1, 21st July, 1 9 4 9 A P P E N D I X
STERLING A R E A G O L D AND DOLLAR D E F I C I T ^ F I R S T AND SECOND QUARTERS
1949
$ £
First
Quarter
A c tual
United
States—
United Kingdom Purchases
Exports and diamonds
Invisibles, c a p i t a l , &c.
million
Second
Quarter
A c tual
Second
Quarter
Targe t
April 1949
- 5 4
18
13
-
69
15
2
-
85
27
19
- 2 3
16
- 2 7
-
-
-
52
3
39
-
39
8
21
S t e r l i n g a r e a w i t h U n i t e d S t a t e s ...
Sterling area with Canada
Sterling area with United States
account
- 3 4
- 3 4
-
88
34
-
52
28
- 9
- 1 8
-
16
S t e r l i n g area w i t h D o l l a r A r e a
S w i t z e r l a n d a n d B e l g i u m ...
P e r s i a ' &c. ...
Gold p u r c h a s e s
- 7 7
- 7
- 1 2
14
- 1 4 0
16
7
7
-
96
13
9
5
- 8 2
1
U n i t e d K i n g d o m deficit w i t h U n i t e d
States
D.O.Ts.
...
I n d e p e n d e n t R . S . A . ...
T o t a l Deficit
...
K*7
- 1 1 3