APPENDIX
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Main Features of the External Sterling Plan
(This is in a form suitable for inclusion in a telegram to the Commonwealth).
1. The Plan consists of six parts:-
(a) As from
?
sterling currently earned by countries outside the sterling area (which will be designated as "external sterling") will become convertible.
(b) The nominal official parity of sterling will remain at $2.8 but no attempt will be made to maintain the existing margin of $2.78 to $2.82. We shall use the gold and dollar reserves, held by our Exchange Equalisation Account, to inter- vene constructively in the exchange market so as to secure the maximum stability in the rate at a level consistent with the real international value of sterling. For your own infor- mation we shall seek initially to keep the rate within limits
to be defined so long as this does not dangers ously weaken the reserves, but you should know that this intention will not be made public or revealed to anyone (repeat anyone) except for the narrowest possible circle of the U.K. and Commonwealth financial authorities.
(c) The London gold market will be reopened and gold will be traded in a free market against external sterling, dollars, and other currencies at prices fluctuating according to supply and demand, and not in any way tied to the U.S. official price for gold.
(a) The sterling balances of non-residents (repeat non-residents) in the sterling area will be frozen sufficiently to prevent any appreciable offerings of such balances of the London market in exchange for dollars or other wanted currencies. The following steps will be taken:
(1) Up to £1,000 could be transferred to External Sterling
Account; this would dispose of de minimis cases.
(ii)
The balances would be avilable for meeting pre-zero
commitments, on a restricted basis.
(iii) Foreign commercial and central banks could transfer
agreed sums to External Sterling Account as working balances.
(iv) The remainder of the balances could be invested in
quoted securities with a life exceeding ten years, such securities (or any balances not so invested) being blocked.
(v) All existing balances on American and Canadian Accounts
(for which we are already liable to provide dollars) will be transferred to External Sterling Accounts.
(e) The present structure of the sterling area would be main-
Countries in the area would retain full exchange
tained.
1.
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/control
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control and sterling area residents would still need authority fromPage 119c0f25hments to acquire foreign curreRages1 19 afh253 market for purchases outside the area, Payments between sterling area countries would not, of course, involve the use of external sterling. It is essential for the success of the scheme that all currencies within the area should maintain a stable exchange rate with sterling, though not necessarily at the existing parity.
f)
In order to convince the world that the exchange value of sterling will not be subject to constant depreciation under the weight of an excess of sterling, it is an essential part of the scheme to show that only a small proportion of the sterling balances represents effective sight liabilities of the U.K. From sub-paragraph (a) above it will be seen how drastically we propose to treat the balances of non- sterling area countries.
see
Form of statement we require from the sterling area Governments. This is still under consideration
of covering memorandum.7
paragraph 19