Washington Discussions on Financial Questions and Commercial Policy
Washington Discussions on Financial Questions and Commercial Policy
Since September 1945 the British Government had been negotiating a financial arrangement with the US. The Cabinet discussed international financial policy on a number of occasions beginning on 6 November 1945. They discussed the American loan agreement and whether the agreement reached at Bretton Woods should be ratified. Bretton Woods set up a system of rules, institutions and procedures to regulate the international monetary system; the planners at Bretton Woods established the International Bank for Reconstruction and Development which became one of the five institutions of the World Bank Group and the International Monetary Fund (IMF). The chief features of the Bretton Woods system were firstly, an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value, plus or minus 1%, in terms of gold and secondly, the ability of the IMF to bridge temporary imbalances of payments.
The following extracts give a flavour of what was said in Cabinet:
Bretton Woods. Nothing in this which affects state trading etc.
Narrower than supposed.
Wd require us to do 3 things
a) secure stable exchange rate
b) .. relaxn of .. restns qua current paymts.
c) .. convertibility of currency.
Of these, a) is to our advantage. Competitive devaluation of
foreign currencies was greatest handicap to our export trade in
inter-war years. Subject to condition: that we can avoid being dragged down by deflationary depression of other currencies.
For this, escape clauses are provided.
We shd. have to declare our rate of exchange v. dollars & gold. We can change by 10% either way uni-laterally. Beyond 10%
also, if Gov. Body of Fund are satisf. change needed to correct fundamental disequilibrium.
Further, any member can w'draw at any time w'out leave or
Many safeguards, therefore.
Obligations, especially under b) and c), won't operate until after transitional period wh. mustn't be too short. If 5 years, this wd. do.
Interpretative declaration. Wd. be safe without it. But cautious to
safeguard a) our emplt. policy b) transition: period is at our
option. Read out text from "a)" to (b).
Criticisms - a) we are abandoning Sterling area system.
Safeguards really destroy B.W. Agreemt. And, havg. meanwhile destroyed Sterling area, we shall be left with neither.
Sorry to see these separated into w'tight compartments. Can't discuss B.W. w'out refce to commercial policy.
We begin fr. the point that we must borrow from U.S. But we haven't been told yet why, we need to borrow.
In my memo. of August. £1.00 m. over 3 years: to buy the imports we
B. Woods. Talk with J.A. & Keynes: K. admitted it wd. be better to
get Trade agreemt. before B. Woods.
Tho' borrower in diffies, so often is the lender. What wd. happen in
U.S. if we had to tighten our belt. Ball not entirely at U.S.
feet, since the debtors are essential to U.S. prosperity. We can
therefore strike hard bargain.
Clear intention of U.S. = break up Sterling group. Let us first be sure
of consequences of that. We shall then be entirely in U.S. hands,
who can throw resources where they wish. Don't play into their
hands by makg. it condn of borrowing from them (wh. is to
their advantage) tht. we shd. accept B. Woods and destroy
How close is B. Woods to Trade Agreement. What is devaluation
for - related to emplt. policy & to trade agreement. Just as
much dictation as it was in 1931. B. Woods postulates non-
discrimination. We must leave our hands free.
Aren't we too quick to accept this international co-opn idea w'out
seeing first what it means. Do you think U.S. will throw their
markets open to us?
Then there won't be any agreemt. They can be self-sufficient. And for this nebulous offer, we are going to break Sterling Area and discard our power of discrimination.
This is clear issue - are we to maintain Isolationist Policy or to follow declared policy of Labour Party? Are we going in for attempt at it. This = all part of a scheme. If one leg breaks, we shall
come out of all these schemes. Our policy = to have a shot at
this, provided we are safeguarded v. failure.
Was ready to agree to that when it was assumed tht. U.S. wd. approach this with reasonable moral attitude. Much opinion tht. U.S. are using financial posn to enable them to break our Imperial
They are more dependent on us than they suggest.
After 1931 we got on our own feet in 2 years by Imperial trade
system. Think we may have to do the same again unless we can get better terms.
Don't yet know what these terms involve. Will they tie a mill stone round our necks for a generation. a) What happens to pre-war U.S. debt? What is debit value of remanet of L-Lend? Sinking fund & interest will or may be intolerable burden.
I'm considering that.
On b) all will be wiped out: ½ billion dollars out of this loan will be attributed to that. Final evaluation, includg. those in pipeline,
are being estimated in Washington.
And then you pay 2% on them.
Yes because they are either goods after V.J. Day or goods we intend
to divert to civil uses.
L-Lend will be wholly & finally liquidated for this ½ billion dollars.
Think we're giving far too much for what we are getting.
U.S. purpose = liquidate Sterling Area.
St. Area canalises trade. Our creditors are anxious to trade with us
in order to get our goods. (H.D. Unrequited exports)
Trouble = large sterling balances: they want goods for which we get
nothg. in return.
Sterling bloc is somethg. wh. will go on v. strongly if you don't make this agreemt. with U.S. On contrary, they are v. conscious of
the diffy. above, & they will break away. S. Africa will soon
want to go out of it.
Started in 1941 - U.S. not in war: no L-Lend. A.G. was then in Chair. After L-Lend started, K. to help invented Bancor. I got them to agree to reservation in Interpr. Decln. Then White invented
Unitas. For all these years same arguments all over & over
I hate idea of getting under U.S. control. But situation I'm faced
with is - can you carry thro' B. people for next 3 years on
lower rations. I believe our bluff is called. We can't ask them to face another 3 years of even tighter living - with
industrial unrest. We are in Shylock's hands. What is lowest price we can get? Wd. risk a higher price w'out strings. But
we can't get rid of the strings. And I believe our negotiators
have got the best terms possible. No alternative now but to
accept this unless you are ready to demand these further
sacrifices from the B. people. That this is the real issue now.
Issues to be faced. a) Are you ready to tell B. people to suffer 3 more
years of even worse privations?
Problems clearly put in p.p. of August by Keynes & R.S.C.
We have done v. well to get so far.
We can't dictate to U.S. Tho' their long-term diffies will be greater
than ours, they are on velvet to-day.
Unless immediate relief by U.S., years of privation for U.K.
Take firm decision to-day.
Our diffy = no p.p. seen since we saw mema in August.
Any creditor can break a debtor. Only a wise creditor can let him
live & make him pay. U.S. is not a wise creditor.
We may in the end have to ask our people to stand up to it. But we
ought to be able to say tht. it was the creditors & not we who
broke up the Confce. We shd. go to the confce & try to make it
clear to the U.S. people that they have their duties as creditors.
Avoid anythg. wh. makes us subservient to U.S. And if it breaks
make it clear that U.S. broke it. As we did for Russia at C.F.M.
Ques. wtr. B. people wd. stand more privation. Even more important
wd. be loss of all their hopes of international co-opn. U.S. wd.
pull out of responsibilities for occupn etc. Moral loss wd. be greater than any economic loss.
Para. 7 of H.D.'s memo. But I have reservns on Annex C. E.g. Russia
has to be brought in: look at para. on State-trading. No
Socialist Govt. cd. accept that.
The words aren't happy, but are directed to use of State trading to
get round tariffs.
Look also at words on Subsidies. All right if they aren't concealed.
Concealed State subsidies for shipping in U.S. a) Ask
therefore tht. our hands be not tied. b) Ask tht. we look at
B. Woods after Trade Agreemt.
Wd. be ready to give up b) if you agree to a).
The deal wd. then be off. Two months' work wd. be wasted. All
these proposals are our own. State trading - as in telegrams.
When it comes to workg. it out at Confce, we can propose detailed
amendmts. We got it agreed tht. State tradg. formula doesn't
exclude long-term contracts with regular buyers. Convinced tht. this can be safeguarded by long-term arrangemts.
Can't agree this is good agreement. Think it is a bad one. And
people will so regard it. Accept F.O. word that alternative
is to bite on the iron: but don't know how much. Believe
we have under-estimated our own strength & over-estimated
I wd. rather face that than accept this position. For U.S. won't be able to co-operate.
What it wd. involve.
To maintain existg. p'mme of consumption & production. 100 needed fr. U.S. in 1946 alone.
With no imports from U.S. - bread & potato alone wd. be maintained. redn in fats: no cheese increase: no dried eggs or tinned meat:
15% redn in meat imported: redn in maize, effect on livestock: 50% .. .. sugar: 40% in ply wood: cotton: 80% redn in
No export of steel products.
W'in Ty. I have long refused to believe we are so dependent. And
these facts produced because of my reluctance.
Easy to make a Dunkirk speech. Diff. matter to face those facts. We
really can't face it.
What will U.S. do with these goods.
They won't give us them on L.-Lend.
U.S. will be forced to come to terms with us.
Believe we cd. force U.S. into it. U.S. want to know how they will
dispose of their products.
Let us have the loan, but don't let us tie our hands.
Taken from C.M. 50(45) - Meeting held on 6 November 1945.
The Cabinet continued their discussions on the Washington talks on 5 December following further talks in Washington and counter proposals by the US.
The following extracts give a flavour of what was said in Cabinet:
U.K. draft at last Cab. U.S. counter-draft: in many respects the same
but some diffies.
Many mtgs. in W'ton: & here of 3 Ministers.
Substantial point now outstandg: transit. period is connn with B.W.A.
and scheme generally. U.S. counter proposal unsatisf. Strong
telegram sent askg. for 3 amendmts - a) t. period origin. 5 yrs
under B.W.A.: U.S. were seekg. to reduce to little more than
one b) U.S. seekg. deprive us only of benefit of scarce currency
clause c) not clear how far we retained right to resign fr. Fund.
As a result: b) we have won outright. c) our freedom to resign
not challenged - & to re-value sterling: but not to re-impose
exchange control on current transaction by resigning. First =
the more important. a) we haven't bn. met: & U.S. ready to
break on this.
This therefore is the issue. T. period originally cont. = 5 yrs. Now
agreed: 15 mos. fr. effective date (for both Agreemt. & Fund).
Ques. = betwn. 15 mos. & 5 yrs. We suggd Dec. '48 & they
reject it. Shd. we make final effort for e.g. 21/2 yrs? But: pt.
was to give us freedom when we were short of f. exchange.
They say, you won't now be short because of loan. Awkward
for Parlt. presentn tht. this period is to be cut down. But shd. we
break on this?
In U.K. draft considered before: commd to free dollar earngs. w'in
1st 15 mos. Sterling area desire this. For Sterling area therefore
this pt. already given away.
Countries for wh. restns wd. remain = some not founder members
of Fund, mainly Switz., Spain & P., Argentine.
Qua other founder members, already commd to freeing on current
earnings in 15 mos.
Not therefore as much in this quantitatively.
Fr. loan: terms much more harsh. Repaymt. in 30 yrs. vice 55 &
beginning at once. 23/8 vice 2%.
If we get this, need for care over dollar exp. wd. remain. Slow
drawg. - qua overdraft. And build up exports w'in 2-3 yrs.
Durg. tht. time protected by this credit fr. impact of econ. condns
outside. Cd. build up standards/livg. 6 year fr. Dec. 45 before
paymt. begins. Shd. get right by then - increasg. release fr.
shortages & austerity. Assumg. reasonable freedom for expts.
shd. be able to carry the charge by then.
If we don't get this - a) reversal on standards = food, clothing,
tobacco. Recalled earlier informn on this. Less of all foods save
bread & potatoes. This = immediate consequences before
switching to other sources. b) Power to export limited by gt.
U.S. drive on competitive basis. c) Political consequences on
this Govt.: wd. be said to be our fault. d) Canadians wd. say
we had broken on an unimportant point. W'in sterling area
disintegration wd. begin rapidly. They don't like our control
of dollar pool. S. Afr. wd. quickly brk. away: U.S. wd. offer
India gt. inducemts. to brk. away. Egypt wd. go. We shd. be
left with Austr. & N.Z. e) Genl. effect on Anglo. U.S.
co-opn - & internatl. political posn.
Conclude: not justifiable to break on this. Make a final attempt to get
some alleviation - e.g. extend to Dec. '47.
Diffy. more psychol. than real. In fact not giving much because
t. period much cut down already.
Won't therefore make much diff. in dealg. with sterling.
Real diffy. is Parly. one - askg. for ratificn of B.W.A. at same time
as bilateral agreemt. Cuttg. down period fr. 5 yrs. to 15 months.
Quite logical, however, for U.S. to say large loan with no
repaymt. for 5 years makes it unnecessary for you to invoke
Art. 14 of B.W.A.
Alternative so disastrous I believe we shd. face Parly. diffy.
I am against brkg. on this. Concerned to get our industry going - for
reconstn of Europe. Tried for '48 because believed by then we
shdn't be so dependent. Even by '47 chance we wd. be well on
the road. Try for '47.
If U.S. had opposed c) it wd. have bn. v. serious. Glad Art. 15 isn't
a) is much less serious. Not of practical importance. And much in
Think we shd. accept - must prime the pump.
Doubt if its worth trying to get '47. Wdn't help the Parly. argument.
Might introd. fresh complicn. I wd. accept w'out a last attempt
Agree with C/E. & B/T.
. . . . . . Shd. get no support fr. Canada or S. Afr. if
we broke on this.
On prev. pts. of doubt negotiators have done v. well.
We may be optimistic re recovery. Heavy fiscal charge in '50/51.
Wd. like a further effort to extend - to '47. because Parly. diffy.
Worth another shot.
Consequences of a brk. - for other countries as well as us - so severe
I wdn't brk.
Agree with P.L. re last shot.
Don't attach importce to redn of t. period because agreemt. as a whole so bad. Only pt. on this = it's bilateral, in a multi-lateral
Presented with alternatives. My answer to that: haven't adequ.
explored posn in long run if this accommn rejected. H.D.'s
figures etc., have related to immediate consequences only.
Believe tht. if we had stood up to U.S. we'd have done better.
This = overdraft only & on one bank. Asked to accept on
understandg. we buy heavily fr. U.S. Don't believe our
industry. recovery depends on imports fr. U.S. Do believe
their industr. recovery depends on makg. loans on condn of
purchase of their exports.
U.S. Shylock. We cd. have impeached them before the world.
That wdn't have embittered Anglo-U.S. relns. What would
do so is if 2/3 years hence we have to say we can't meet our
U.S. insisting on this redn in t. period in order to force us into takg. up
This is U.S. come-back on our puttg. it on basis of overdraft.
Forces us to use the dollars instead of Art. 15 method of escaping
This is how argument will be put in Parlt.
Too much concerned with our diffies = not enough with theirs.
Psychol. aspect. R.S.C. thinks he has got all he wants - but U.S.
think the same.
Risk of mutual self-deception. Will foul Anglo-U.S. relations.
They & we will think of spirit, not letter.
Can't brk. on this sort of point, if we once accept Agreement in
Negotiators v. skilful - but our approach was wrong. Wd. have bn.
better to say at outset we wdn't accept Agreemt. wh. wd. militate
v. reconstn of world-trade.
In general agreemt. with E.Sh.
So am I but can't break on this point.
Taken from C.M. 59 (45) - Meeting held on 5 December 1945.