Crisis and creation of ROBOT

The balance of payments crisis

Winston Churchill's Conservative government was elected in October 1951 and the new Chancellor was Richard ‘Rab’ Butler. The Chancellor was confronted with a large balance of payments deficit and a heavy drain on dollar and gold reserves. In November 1951 the Cabinet set up a committee to consider a solution to the drain on reserves and the lack of confidence in sterling. Butler responded by drastically cutting imports and raising interest rates from 2 to 2.5 per cent. The Cabinet attempted to develop a policy to reduce dollar area imports into the sterling area and increase exports. At a meeting of the Commonwealth Finance Ministers in 1952 key members agreed to cut their imports to maintain balance in the sterling area. The return of convertibility of sterling against the dollar was discussed as a long-term aim.

These policies ran against the interests of the American government, which was intent on promoting trade liberalisation. While the Americans had accepted the suspension of sterling convertibility against the dollar in 1947, they were keen for an early return. Winston Churchill and Anthony Eden visited Washington in November 1951, where the Americans made it clear that any US assistance would be limited.

ROBOT

In early 1952 the Treasury and Bank of England advanced a plan to Richard ‘Rab’ Butler, which became known as ROBOT, an acronym derived from the names of its originators - Leslie Rowan, Sir George Bolton and Otto Clarke. The idea was to restore convertibility for non-resident sterling (sterling held outside Britain) as had been agreed at Bretton Woods. The major innovation of the plan, however, was that convertibility would be at as floating, rather than the current pegged rate of £1 to $2.80. This would mean the disruption of the Bretton Woods system. This was posited on pegged rates of currency exchange, which could only be changed by the International Monetary Fund under conditions of 'fundamental disequilibrium'.

ROBOT was politically controversial, as it would have alienated the American government by undermining Bretton Woods. In spite of Butler's arguments in favour, Cabinet turned down the scheme in February 1952 and again in June. In the event, the balance of payments improved during the year, pressure was taken off the pound, and Butler dropped the ROBOT scheme.