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APPENDIX A
Page 578
STATEMENT MADE BY THE CHANCELLOR OF THE EXCHEQUER TO A MEETING OF UNITED STATES AND CANADIAN MINISTERS ON WEDNESDAY, 7TH SEPTEMBER, 1949
What I would like to do at this first informal meeting is to give my colleagues in a very few words an account of the problem and of its magnitude as we see it and a short description of the steps that we in Great Britain intend to take to try and go as far as ever we can towards its solution..
We are all familiar enough-perhaps too familiar with the events of the last ten years in the fluctuating economic relationships of the sterling and the dollar areas and the rest of the world. We have heard the criticisms, well- and ill-informed, of a host of persons on both sides of the Atlantic, and we certainly don't want to emulate them either in the multitude of their words or in the acerbity of their criticism.
Indeed, I think we can best leave the dead past to bury its dead. No doubt we have all been dealing with great economic forces engendered by the world war and by the historical development of the world economy over a much longer period which are immensely difficult to master or to bring into order and none of us would claim unlimited success or unrelieved failure. We've all done our best with some measure of success, but we have now reached a period when it is really better to restate the problem in quite simple terms and then see what we can each and all do to contribute to its solution.
We all know how the sterling area earned its dollars before the war and how greatly the position has changed in the post-war period.
In the United Kingdom we have increased our visible earnings, but have lost most of the income formerly derived from dollar investments. At the same time, as a result of the war and the political difficulties standing in the way of a restoration of the former level of trade with Eastern Europe, the European countries are more than ever dependent on supplies from the Western Hemisphere. Thus, reduced to its simplest terms, the problem before us is to find a new way of balancing, at the highest possible level, trade between the Western Hemisphere and the rest of the world, of which the sterling area forms so large a part. In the early part of this year we estimated that the United Kingdom would be able to finance imports from the dollar area in 1949-50 to the annual value of about $1,600 million. This calculation depended, of course, upon various assumptions, especially as regards the levels of E.R.P. assistance and of dollar earnings. As you know, we found last June that a large and increasing gap was appearing and was causing a dangerous drain on our reserves; we had to find some way of stopping this and took the only course immediately open to us, of arranging to reduce our purchases. The reductions we have planned would have the effect of reducing the total value of our import programme to some $1,200 million. But even the figure of $1,600 million was on an austerity basis and represented the minimum volume of imports from the dollar area if we were not seriously to retard our recovery. None the less, we were faced with the harsh necessity of making cuts of this order if we were to have any hope of arresting the drain on the reserves. We have faced that necessity and we shall see that our intentions are carried out. Likewise the rest of the sterling area, since the London Conference in July, are taking steps to diminish their call on the central dollar pool by amounts equivalent to 25 per cent. of their dollar imports.
I now want to tell you what it is we in Great Britain have decided to do to try and make a new contribution to the solution of this world problem-for a world problem it is. This is, of course, in addition to the many steps we have already taken to stimulate our dollar earnings steps which I do not now propose to recapitulate.
We have re-examined the whole situation as to the exchange rates of sterling against the dollar in the light not only of the factual situation but-what is perhaps of equal, if not greater, importance the psychological situation. It is quite possible, in anything so arithmetically uncertain and incapable of proof as a fixed exchange rate, for world opinion generally or in specific countries to take an attitudes ag tofitnightness or wrongness which chaitheggjsgæpport to or undermine the stability of a currency.
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So far as sterling is concerned, there are some factual indications that, in regaagaoporcifma2 sections of trade, sterling prices Raga branslate4nto dollars at the existing rate of exchange are too high to be competitive. This is not, in fact, so great an element in the situation as many people have suggested, and there are a great many other important factors, such as salesmanship, which are equally or even more influential in retarding dollar sales of sterling goods.
So far as the United Kingdom is concerned, a change in the sterling-dollar rate of exchange would make little, if any, difference to the volume of dollar goods imported into the United Kingdom, though it would, of course, increase the cost of living quite materially in terms of sterling.
We have to remember, of course, that the exchange rate of sterling affects all the rest of the sterling area and no doubt other countries too, who are liable to keep their existing parity with sterling whatever may be done to the sterling-dollar rate of exchange.
On the psychological side there is no doubt whatever that since last spring a very wide expectation has grown up that sterling would be devalued and this has militated against the stability of sterling and has caused a certain degree of strain upon our reserves. That strain has now diminished, we believe, as the amount of our drain of gold and dollars since 30th June has been rather less than we then estimated. Nevertheless there is, no doubt, still withholding of purchases as well as a considerable volume of black-market activities, especially in certain sterling raw materials, which is losing us dollars.
We have as I have said-reviewed all these and other considerations and we have concluded that the best policy for us to pursue in the interest of the solution of our common problem is to embark forthwith on a sterling devaluation.
You will appreciate that this is a most highly confidential announcement that I am making and if it were to become known outside this room it might lead to the loss of many scores of millions of dollars of our reserves. In addition, it is highly probable that at least for a short period there would be a more or less com- plete interruption in international trade. I must therefore beg all of you not to mention this decision to anyone whatsoever at this stage.
We hope to carry through the arrangement on 18th September, and I shall fly back to make the announcement in London on that day. We must keep the matter absolutely secret till a day or two before the 18th, when we shall officially communicate the fact to you, still in the greatest confidence, but also in more detail.
We do not naturally ask you for your views on what we are doing. That is, of course, for us to decide, but there is one matter on which I would wish to give you an opportunity of commenting, if you wish to do so, at the time when we make the official, but still very confidential, communication to you. That is the question of the new rate. We must take the decision, but if we are to try and solve this problem together I would like you to have the opportunity to give us the benefit of your views before we finally decide. It obviously must be a sufficiently large devaluation to satisfy people that it is final and conclusive, but it must not be so large as to increase unduly the cost of living for our people or to make others feel that we are getting an undue advantage of them by the device of over- devaluation.
You will, I know, all realise that when one is dealing with a currency like sterling, which has a very wide international circulation both throughout the sterling area and the so-called transferable areas, it is absolutely essential that once devaluation takes place it should be regarded as final and that no counter steps should be taken to make negative the effect of the devaluation. The object of the devaluation is two-fold. It gives greater stability to sterling and it should enable sterling countries to earn more dollars.
The first objective would be wholly defeated if it were to be suggested that we should embark upon a further devaluation at some fairly near date-or indeed at any date-after this devaluation.
The central issue is one of confidence. In this respect, it is perfectly clear that a great deal will depend upon the attitude taken by informed opinion in the United States and Canada. If we are to get the maximum benefit from the change and to use this particular decision by the British Government as a constructive contribution, then it is most essential that the British Government should have the full and wholehearted support of your two Governments and of informed point in your two countries. Nothing culdebe7alofabed to have a more beneficial influence on world opinion and thus in confidence in sterling. We
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should hope Ptherefore, thence devaluation takes place agenda af G6 in a chorus of support and of assertion that the degree is adequate and satisfactory and ought to settle once and for all the whole question of sterling devaluation. That we regard as very important indeed.
Second, it would obviously be of no avail to us in earning more dollars if any steps were taken to reduce that advantage by a devaluation of the dollar as occurred in 1933, or if steps were taken by other means to keep out sterling imports which had won their way into the dollar markets by devaluation.
Our people will be paying quite a high price for devaluation in an increased cost of living, which we do not intend to cancel out by increasing subsidies, and they would feel greatly disappointed if they were by other means to be deprived of the benefits of devaluation in extra dollar earnings.
On both these aspects the degree of devaluation is, of course, important and that is why we should like your observations on it before we come to our final decision.
We would also like to be assured that when we take this step we can be accorded your unqualified support and made secure against any loss in its effective- ness as a result of any of the extraneous measures that I have mentioned.
There is one matter in reference to I.M.F. procedure which I think I must mention. You will be aware that for any sizeable devaluation 72 hours or longer notice is required for consultation with I.M.F. This might be possible under some circumstances and with some currencies, but in the case of a world-wide currency like sterling we could not risk the losses that might be incurred if there were premature publicity and we cannot therefore comply with this period of notice, though it is our intention to inform M. Gutt personally and confidentially before 18th September.
We can see no way of getting round this difficulty and we hope you will all agree with us upon the procedure which we propose.
The circumstances also make it impossible for us on this occasion to take part in discussions at Fund meetings on Exchange and Monetary policies. I am sure you will appreciate this, and I hope that we may have your support in avoiding any such discussions by suitable adjustment of the Agenda in the Committee on Procedure.
It is important, I think, to make it clear that we do not regard devaluation as a miracle-working device which can put matters right by a wave of the wand. We hope and believe it will help and may be one factor in the solution of this very difficult and stubborn problem.
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I am quite sure that the gravity of the problem has been very generally under- estimated. If it cannot be solved then it does mean a division of the Western world into two economic groups and the very likely collapse of the economy of Europe, which is balanced on a knife edge to-day.
It is a very grave matter for anyone who has charge of the sterling area's resources and currency to suggest what I am suggesting to-day, and it will have very difficult and strong political reactions in our own country, but I am so con- vinced of the greatness of the risks that we are running in a collapse of the equilibrium of our economies that I feel this is a step we in Great Britain must
take.
So much then for our first decision on devaluation.
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I now pass to another aspect of the problem which arises out of our internal financial position and as to which I would like to tell you of our decisions and intentions. Again, I would make it quite clear that I am not attempting to put upon you the onus of any decision. This is a matter that concerns my Government and we have taken the necessary decisions, but I feel that if we are to co-operate in the solution of this problem you must be the first to be informed of what we are doing in the direction which we believe necessary.
You will be aware of the steps that we have taken in the last two years to avoid inflation and to bring about some measure of disinflation.
In so far as devaluation encourages exports it will of course have an infla- tionary effect. Moreover, the increase in the cost of living, though in itself deflationary, will reinforce the demand for higher incomes generally. Apart from that there are signs to-day that our disinflationary policy is no longer powerful enough to disinflate against the pressures that are growing in the opposite direction. This has not yet become serious, but with devaluation it might become so, and we have therefore decided that we must reinforce our existing disinflationary policies by a concerted attempt to bring down Government expendi-
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tupe Steps haze been put in operation to this enpagWegare determined to do whatever is necessary, as we have done over the last two years, to avoid any increase in inflationary pressure.
This will, we hope, reduce the pull of the home market on resources required
· for exports and accompanied by the increased attractiveness of the dollar market due to devaluation it will, we believe, result in considerable increase in our dollar earnings.
You would not I know wish to go into these domestic matters, but I thought it right that you should know the general line that we have decided to take.
No one can of course evaluate the effect of these steps that we intend to take- we hope that they may have a marked effect on the volume of our dollar earnings; provided as I have said that nothing eventuates which will counteract their good effect.
These steps are sufficiently far reaching and serious for our people and for all those of the sterling area for you to realise, I am sure, how seriously we regard the problem and that we do not regard its solution as a question of more aid for
Britain."
I am quite sure that the aid period must be regarded as drawing to a close with the Marshall Plan and that it must be followed by some readjustments of our economies which can prevent recurrent crises and which can be regarded for the present as steps towards a permanent solution rather than temporary expedients. I don't suppose that any of us imagine we can here and now finalise the economic pattern of world trade for that is what we are in reality discussing for all the future. We can, I believe, agree upon the utility of certain short-term measures and of a number of steps which each of us can contribute towards the more permanent adjustment of our economies to the achievement of a dollar- sterling equilibrium.
APPENDIX B
JOINT COMMUNIQUÉ ISSUED AT THE END OF THE TRIPARTITE DISCUSSIONS IN WASHINGTON ON 12TH SEPTEMBER, 1949
1. Representatives of the United States, the United Kingdom and Canada have met during the past week to examine the trade and financial relationships between the sterling area and the dollar area. The pound and the dollar are the two principal world trading currencies. While the development of a satisfactory balance of payments between the two areas is a matter of fundamental concern to the democratic world, it involves many problems which concern in the first instance the Governments which are the centers of these two currency systems. The present discussions were held to examine these problems. It was recognised that the task of working out conditions under which world trade can develop steadily and in increasing freedom will require a strenuous and sustained effort, not only on the part of the United States, the United Kingdom and Canada, but also by all other countries desiring the same objectives.
2. It was agreed that the common aim is to work toward an ultimate solution which will maintain employment and establish equilibrium of inter- national trade on a mutually profitable basis at high levels. These objectives and general course of action have already been set forth in the United Nations Charter, the Bretton Woods Agreement, and the Havana Charter for an Inter- national Trade Organisation. It was the broad purpose of the present meetings to explore, within this general framework, various specific measures which the three Governments might take to prevent a serious breakdown in the dollar- sterling relationships which would have led to a crippling limitation of dollar imports into the sterling area and to hasten the achievement of those objectives. 3. These conversations have carried forward the consultations initiated in London during 8th-10th July. They have resulted in a clear understanding of the character of the difficulties to be faced and an increasing realisation that a fully satisfactory solution will necessitate continuing efforts in many directions. Ihage 58ursef ofthese conversations it has becomePagsibeltofdiscuss with com- plete frankness specific problems and the types of measures which will have to be taken if the three countries are to achieve their common purpose.
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4. In the early stages of the discussion, attention waspriven to the immediate problem confronting the United Kingdom and the rest of the sterling area as a result of the rapid decline of gold and dollar reserves. Note was taken by the three Governments of the emergency action which sterling area countries have decided to take to meet this situation. These measures are not pleasant ones; they will cause difficulties and sacrifices for everyone concerned. Nevertheless, they are a temporary necessity, and are recognised as such by all three Govern-
ments.
5. The Ministers were in complete agreement that no permanent solution to the problem could be found in the emergency steps contemplated.
A more fundamental attempt would have to be made by all concerned to expand the dollar earnings of the sterling area and to increase the flow of investment from the North American Continent to the rest of the world, including the sterling area.
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6. This more fundamental attempt would involve both separate actions by the three countries operating individually, and joint action by the three acting in co-operation with each other. In approaching these possibilities of individual and joint action on the sterling-dollar problem, there was common agreement that this action should be based on the assumption that extraordinary aid from the North American Continent would have to come to an end by the middle of 1952. This would require that the sterling area increase its dollar earnings so as to pay its way by 1952. This would require in the sterling area the creation of appropriate incentives to exporters to the dollar area and a vigorous attack upon costs of production to enhance the competitive position of sterling area products. Maximum efforts would be made to direct exports to the dollar area and build up earnings from tourism and other services. As a part of this export campaign by the sterling area countries, it was recognised that an essential element was the creation of a feeling of confidence on the part of sterling area exporters. They must feel that they will be afforded the opportunity to remain in the markets of the United States and Canada in which they will have gained and that the minimum of difficulties will be placed in their way in entering
those markets.
On their part the creditor countries undertook to facilitate, to the greatest extent feasible, an expansion of dollar earnings by debtor countries, including the sterling area. It was agreed that the United States and Canada should reduce obstacles to the entry of goods and services from debtor countries, in order to provide as wide an opportunity as possible for those countries to earn dollars through the export of goods and the provision of services, including tourism. It was recognised that such a policy would be in the interest of producers in the United States and Canada, for only in this way can the future level of trade provide adequately for those sectors of the American and Canadian economics which depend in considerable part upon foreign markets.
7. The discussion of possible individual and joint actions, both long-run and short-run, ranged over a wide field. In addition to the question of dollar earnings of the United Kingdom and the rest of the sterling area, mentioned above, the Ministers gave special attention to the following subjects:
(1) Overseas investment.
(2) Commodity arrangements and stockpiling.
(3) Limitations on items which may be financed under present E.C.A.
procedures.
(4) Customs procedures.
(5) Tariff policy.
(6) Liberalisation of intra-European trade and payments.
(7) Sterling balances.
(8) Petroleum.
(9) Shipping.
(10) Provisions for continuing consultation.
8. A working group on overseas investment reviewed both recent experience and future prospects for the flow of productive investment, both private and public, from North America to overseas areas, especially underdeveloped countries. It was agreed that a high level of such investment could make an important contri- bution toward reducing the sterling-dollar disequilibrium and that every aspect of this problegehold6662plored on a continuing basisPage 56tiate
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this work, the President's Committee for Financing Foreign Trade will be asked immeligel583 exfphore possible lines of action in co-opage: 5830h Coresponding groups of British and Canadian financial and business representatives. While dealing with all aspects of private and public investment, the Committee will be expected to address itself especially to the problem of incentives and of providing a suitable environment for a high level of private investment.
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9. A working group on commodity arrangements and stockpiling, gave special attention to rubber and tin. The Canadian representatives stated that the Canadian Government was prepared to take steps to increase reserve stocks of tin and rubber in Canada. The United States representatives reported that the United States Government was prepared to open to natural rubber a sub- stantial additional area of competition, including à modification of the Govern- ment order relating to the consumption of synthetic rubber. The United States would review its stockpiling program, with particular reference to rubber and tin.
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10. Special attention was given by another group to the practical difficulty being experienced by the United Kingdom in making fully effective use of its E.C.A. aid to cover its dollar deficit. This difficulty arises out of the fact that, although the United Kingdom needs dollars to pay for goods in the United States, to make settlements with other countries, to pay for services, and for other purposes, the types of transactions which may be financed by E.C.Á. dollars have been definitely limited. It has been agreed that, in order to carry out the basic purposes of the Economic Co-operation Act, it will be necessary for the United Kingdom to finance with its share of E.C.A. funds a wider range of dollar expenditures than has hitherto been eligible, both within and outside of the United States. After careful examination of the dollar expenditures proposed to be made or authorised by the United Kingdom, it appears that eligibility requirements can be broadened to the extent required within the limits set by the Economic Co-operation Act. This would broaden the use but not increase the amount of E.C.A. funds allocated to the United Kingdom.
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11. In the consideration of measures which creditor countries might take to reduce barriers to trade, it was recognised that customs procedures may create obstacles, psychological as well as actual. Technical discussions of this subject disclosed that the United States, through administrative action and proposed legislation, was already contemplating constructive steps in this field. Canadian representatives stated that the Canadian Government would undertake a further review of the administrative operation of its Customs Act in the light of these discussions. As to tariff rates, it was noted that high tariffs were clearly incon- sistent with the position of creditor countries. There had already been significant and substantial reductions in United States tariffs during the last fifteen years. The policy of the United States Government was to seek further negotiation of trade agreements through which additional reductions might be made, within the framework of the Reciprocal Trade Ageements Act.
12. There was agreement that one of the ways in which the competitive position of United Kingdom products might be improved was by a widening of the area in which such
this connection as an initial stpeted freely with those of other countries. In
towards a more general liberalisation the United Kingdom delegation outlined its proposals for liberalising trade with countries with which it did not have balance of payments difficulties, and raised the question whether the provisions of Section 9 of the Anglo-American Financial Agreement, and Article 5 of the Anglo-Canadian Financial Agreement presented an obstacle to such a plan. It was the view of the United States and Canadian delegations that such liberalisation of United Kingdom import regulations should be con- sidered since the United Kingdom shortage of dollars should not in itself force the United Kingdom to reduce its purchases from areas with which it does not have a shortage of means of payment. It was agreed that any United Kingdom import regulations as they affect United States and Canadian products would be the subject of continuing review by representatives of the three Governments through continuing facilities for consultation.
13. (a) A further subject which was discussed was the United Kingdom liabihag represented by the sterling balances of other agentries of arge number of countries has been accustomed to hold either all or a part of their foreign
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exchange reserves in the form of sterling. The existence and availability of such holdings is anftegral feature of the widespread multilateral use of sterling for the purpose of financing international trade. One of the problems of the postwar period has been the existence of exceptionally large accumulations of sterling which were built up, mainly during the war, as the result of payments by the United Kingdom for goods and services purchased overseas in furtherance of the common war effort. In June 1945 these balances amounted to $13 billion. Since then there have been considerable fluctuations both in the total and in the holdings of individual countries, though the amount outstanding at the end of 1948 was approximately the same as at June 1945.
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(b) In principle the whole of these balances represents a charge on United Kingdom production of goods and services. In practice, however, a substantial proportion will continue to be held as reserves by the countries concerned. To the extent that the balances are liquidated, some proportion of United Kingdom production of goods and services is used to discharge this liability instead of to pay for current imports of goods and services.
(c) This whole problem in its various aspects, including the necessity to pro- vide capital goods for development, was discussed in a preliminary way on the basis of prior technical examination by the experts of the three Governments. It was agreed that this was one of the subjects which concerned other countries and would require further study.
14. Investigation of the ways in which the sterling area could move toward a position in which it could earn its own way lead to the discussion of other special problems, including petroleum and shipping_two important elements in the sterling area balance of payments picture. The United Kingdom representa- tives set forth the facts of the very large dollar deficit which the sterling area presently incurs because of oil transactions, and their desire to reduce this deficit to the minimum possible level. It was mutually recognised that the question of oil production and refining, and geographical distribution raised problems of extreme complexity involving the protection of legitimate interests of the major producing countries and companies. The Ministers recognised that these two questions of petroleum and shipping could not be resolved in the short time available to them, and that further study would be required. In the case of petroleum they agreed to appoint representatives to analyse the facts and to provide the basis for subsequent discussions.
15. There has been agreement on the objective towards which policies should be directed and agreement on certain immediate steps which will be taken to bring that objective nearer. There are, however, as has been emphasised, a number of questions requiring closer examination than this short conference has allowed. It is proposed, therefore, to continue the examinations, initiated during the conference, of questions on which it is hoped that useful understanding can be reached under the direction of the present Ministerial group. These arrangements for continuing consultation-supplementing the usual channels of communication between Governments will be used to keep under review the effectiveness of actions already agreed upon and to prepare, for governmental consideration, measures which could carry further those adjustments which are considered to be necessary. In establishing these arrangements for continuing consultation, the three Governments wish to emphasise that these arrangements underline rather than diminish their interest in the development of economic co-operation within the entire community of western nations. The tripartite arrangements will not in any way encroach upon, or detract from, the area of competence of the O.E.E.C. and other existing organs of international economic collaboration. On the contrary, these arrangements for continuing consultation, by contributing materially to the solution of problems which to-day adversely affect the working of the entire O.E.E.C. group and yet are not susceptible of solution within that group, will facilitate the progress of economic collaboration in the wider field.
16. In summary the Ministers of the three countries concerned are satisfied that a real contribution to the solution of the sterling-dollar difficulties has been made by the conclusions recorded above. They are confident that, with sustained efforts on all sides and with the seizure of every opportunity by sterling area. exporters to enter into and remain in dollar markets which are open to them there is the prospect of reaching a satisfactory equilibrium between the sterling and dollar areas
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APPENDIX C
Page 585. TELEGRAM No. 4555 FROM HIS MAJESTY'S AMBASSADOR, WASHINGTON, DATED 19TH STEPTEMBER, 1949
1.
Wilson Smith will send you his impressions to-morrow morning. I send you mine now to give you something to go on. I was present at all meetings of Ministers during the tripartite talks.
2. The week of official talks made a good impression despite great difficulties encountered the British could not deal with policy issues and the Americans had instructions to avoid all policy issues unless the British had already indicated their policy. As a result discussion was purely factual, but it accomplished good work in familiarising all three teams with the essential facts and figures, and deepened understanding of them. Wilson Smith earned admiration of both Americans and Canadians for the way in which he handled a difficult situation.
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3. On Saturday, 3rd September, I had a long conversation with Acheson after dinner. He told me that there was real anxiety on the American side whether the British wished to work towards a free world in which exchanges between dollar and sterling areas were at a high level, or whether they wished to build up a soft currency world centred round the sterling area and cut themselves off from North America. He said our attitude would be judged by what we could say of our resolution to go through with the cuts we had decided upon, whether we were prepared effectively to devalue the pound, an operation which in all the circumstances seemed sensible, and whether we were prepared to stop playing with the export drive to North America and deal with it as a matter of serious and urgent business. In the long term he indicated two other topics as of importance to the Americans, what we were going to do in the general field of productivity, and what we were going to do to minimise the dollar drain of the sterling area upon the central reserves. The attitude of the Americans would be sympathetic and helpful, but the extent of the help they could give would turn on what we had to say.
4. In the light of these American preoccupations the Chancellor's utterance at the first ministerial meeting made a profound impression both in content and manner. It went right home and was responsible for the evident goodwill and helpfulness of the attitude of both Americans and Canadians throughout the talks. In the light of the Chancellor's remarks it forthwith became possible to treat the whole problem of trade between the sterling and dollar areas within
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the group as our problem, and this attitude was manifested in all subsequent
ministerial meetings dealing with the particular problems listed in the com- muniqué as contained within the general problem. Four subjects were remitted to working parties of officials which reported on Saturday, 10th September; they are the first four items of the communiqué. The remaining items mentioned were discussed in the ministerial meetings; none of them was taken very far, but all were admitted to be problems of concern to all three parties, and it was agreed that their solution was essential for the general problem in all cases. It was agreed that discussions on these problems should be carried further in the continuing group.
5. At another ministerial meeting on 10th September the Chancellor mentioned to the Americans and Canadians certain limits within which he felt the exact figure to which the pound would be devalued would fall. Neither Americans nor Canadians expressed opinions or a figure, but Snyder expressed the view that the rate should be low enough to ensure that the operation was once for all, and it was significant that at the close of the conversation on this subject the Americans clearly indicated that when the operation was announced they would give it all the support and backing they could.
6. All three countries emphasised in private and played down in public the importance of the continuing group. It was felt that the discussions of the week had decisively put the three countries on the right read, but there was a long distance to travel, and that therefore the work of the continuing group was essential if progress was to be maintained. The greatest importance was attached by all to the continuous character of this work and the quality of the deputies to Rages of 62Hume Wrong and myself, who agulbechgaged whole-time
upon it.
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7. John Snyder made a good sympathetic and friendly chairman
of He was admirably backed up by Dean Acheson. The Chancellor and Foreign Secretary were a very strong and mutually complementary team for us. My impression is that all Ministers concerned reached a new degree of frankness and friendliness in their ability to discuss difficult questions with each other.
8.
were--
In my view the great gains resulting from the week's tripartite talks
(1) The creation of an entirely new spring of goodwill and confidence towards us on the American and Canadian sides and a corresponding enhanced degree of readiness to help. The previous crisis of confidence was resolved. The precise value of this in dollars is incalculable but is possibly very great.
(2) A real conviction that the three countries represented at the talks have it in their power to remake the economic and trade pattern of the Western world if they can agree together, and a conviction that as a result of the week's work such agreement will be progressively possible. It was clear that the Americans decided to regard us once more as their principal partner in world affairs, and not just as a member of the European queue. (3) The creation of a continuing organisation which can take up the work and thresh out in a good atmosphere for subsequent meetings of Ministers the longer-term problems required for the full post-war adjustment of the economic and trading world.
9. I add two points. In my opinion the calibre of the man we send out as whole-time deputy for the work of the continuing group will set the standard for the American and Canadian appointments. It will also be used as a criterion of the extent to which we are prepared to press on with the job. I think it is of vital importance that the candidate the Chancellor has in mind should be named and appointed very soon.
Secondly there were no understandings or tentative agreements reached on subjects under discussion in the tripartite talks which could influence or prejudice the future work of the continuing group. We have the great advantage of being able to raise the problems which relate to the big one of the relationship of the sterling to the dollar area with friends under a general agreement to agree and an admission that the solution of these difficulties is a matter of common interest and concern to which all three parties can and should contribute.
10. I have not included in this review the short-term results in terms of dollars. Though limited in amount, they are of real importance in our effort to reverse the dollar drain.
[Copies sent to Sir W. Strang and Treasury for Sir E. Bridges.]
APPENDIX D
TELEGRAM No. 140 REMAC FROM SIR HENRY WILSON SMITH IN WASHINGTON, DATED 19TH SEPTEMBER, 1949
Your Camer 146.
1. Owing to our other preoccupations, Ambassador and I have not been able to discuss reply to your telegram. He is sending his own reply and I am sending mine. If there is any marked discrepancy I will endeavour to send explanation in a late telegram.
2. My general impressions are of course secondhand because I was not present at most important talks. Subject to that proviso I consider that general atmosphere and approach by United States Administration was immensely better than we had any reason to expect. Main reasons were—
(a) Truman's speech; and
(b) our tactics on devaluation.
On latter point we should have lost ground if we had either acted unilaterally
before talks or failed to take decision before talks.
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3. The willingness of United States Administration to co-operate was most mariage che genstar
ked. Pre
limitation in effective action was as usual congressional and Lobby opinion. Even so I consider that on fundamental issues we made a good beginning. From conversation which I have had to-day with Martin I am sure that they mean business now that we have devalued. For example
(a) Snyder is consulting Congressional leaders on Tuesday and Wednesday
in endeavour to clear our proposals on liberation of trade.
(b) Administration are seeking support for stockpiling programme and
action contemplated on rubber, &c.
(c) On overseas investment they have appointed strong interdepartmental committee under Webb of State Department. Winthrop Aldrich, Chairman of President's Committee on Foreign Investment, is leaving at once for Europe and will come to London.
(d) The Treasury have appointed Working Group on Customs Administra- tion and want help from Canada and ourselves. State Department are to consider ways and means of tackling problem of tariff rates. (e) Hoffman has been asked to assume personal responsibility for campaign
on shipping protectionism.
4. Big gain in all this is the common problem approach founded once more on belief that we are determined to play our part and that we can and must be differentiated from rest of Europe.
5. Immediate cash dividends are disappointing. On eligibility they found it necessary to drive a bargain which detracts somewhat from otherwise solid advantages. On commodities and stockpiling they are still vague because Congress is liable to cramp their style. On Monetary Fund Snyder showed little willingness to meet us on drawings for India and Australia. I have persuaded Martin this afternoon to have another look at that problem and have undertaken, that Bolton and I will discuss with him on Wednesday whole structure and function of the Fund.
6. If we can keep the momentum going the possibilities are better than I ever imagined but we have a long way to go and much responsibility still rests
on us.
}