Page 462-
Page 462
Page 462
1
221
5.
Page 463, of 662
Page 463 From the point of view of the present holders of sterling balances, acceptance of the scheme will depend on their assessment of possible alternatives. The offer of a lump sum in dollars (possibly over a period of years) in return for the surrender of more than the equivalent in sterling may not on examination seem altogether attractive unless they think that it is the only way to get dollars. It may be assumed that the scheme would have no future unless India were brought in. The attitude of India may therefore be considered as typical partly of the reaction of the holders as a whole, and partly as showing particular handicaps which would have to be surmounted. In the first place it ought to be borne in mind that India would never accept a scheme of this sort unless she saw concrete advantages in it to herself. There is no possibility that she could be brought to admit that her sterling balances were not entirely hers to dispose of as she wished.
6. (a) It is clear from recent negotiations that India would need to keep substantial sterling balances whatever happened. India's sterling programme is very considerably above her probable income over the next few years, and it would be singu- larly untempting for India to accept dollars at a sacrifice to herself of sterling, and before long to be forced to sell those dollars to us as the only means of providing for her sterling needs.
(b) Allowing for the fact that some sterling would remain untouched, the offer to India would be equivalent to selling her a given amount of dollars at a rate of (say) $2 for £1. This might be attractive to her if the sterling balances were so firmly locked up that their realisation appeared hopeless except over a very long period, say 50 or 100 years; but the whole drift of recent settlements with India has been of such a nature that, between the current deficits and the financing of their big capital schemes, the Indian Government might hope to have secured repayment in a matter of 5 years or so of all save enough to provide a respectable cover for the currency (say £300 millions out of the present figure of about £600 millions).
(c) From the Indian point of view, the effect of part cancellation of the sterling balance would mean that India would have to put an end to financing current deficits and reconstruc- tion programmes out of her foreign assets very much sooner than is now contemplated. No doubt some alleviations might be secured by revaluing at current prices India's small gold holding and obviously there would in any case have to be an increase in the fiduciary issue. But such expedients would not take India very far and she would be brought up sharply against the dangers of financing herself, as in the past, out of a reserve which would have been seriously decreased by the measures proposed.
(d) Finally, it may be assumed that India would seek assur- ances that comparable treatment would be applied to other sterling area holders of sterling balances. This would raise serious problems with Australia and New Zealand, who have made us gifts of £20 millions and £10 millions respectively, as well as with the Colonies (see further below).
7. (a) Our own attitude cannot disregard American exigencies
and Indian difficulties. It would be essential for us to secure that any sterling balances "cancelled" were in fact cancelled and that the Americans retained no hold over them in any shape or form. In effect sterling now held by, for example, India would have to be paid into the Exchequer (and used for the reduction of debt), no benefit remaining for any third party. We must not accept any American conditions regarding the use out- side the sterling area of the remaining sterling balances or of the currenage Bin India and other hold463 of 994le it might be true that the former holders would find themselves short of sterling on current account, so that there would in fact be nothing available for spending outside the sterling area,
30
it