CAB129-36 — Page 464

464 of 662 March

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is highlypyndesirablet!

to accept convertibility obligations so to speak by

We must not be led intge the root of bargain apart from a settlement of the convertibility problem as such.

(b) While we need not be unduly sympathetic with India's problems, we must consider our own problem of dislocation and unemployment if the settlement involved a severe and sudden stop in part of our export trade. The recent agreement with India involved us in as steep a tapering off of our exports as was thought to be prudent. There is no reason why we should not accept a further tapering off: indeed it is to our advantage to do so, since (i) it will assist us in diverting our exports to more desirable markets and (ii) it is better to continue to taper off in the near future rather than face a stop imposed by events, as will happen if we acquiesce in India's continuing to run her available balances down to exhaustion.

(c) Nor could we wholly disregard the unfortunate political effects in India itself of being suddenly "reduced to poverty with the inevitable dislocation following the upsetting of such planning already entered upon.

(a) On the other hand we should not accept any Indian argument to the effect that she is unable to make the sacrifices involved in this sort of formula, and that on the contrary greater assistance should be given to the United Kingdom in order that we may continue on our present path of unrequited exports to India.

We should find some difficulty at this stage in deter- mining how the principle of Section 10 could be applied equitably. Had action followed immediately in 1946 we could have dealt with figures as they then stood and it might not have been difficult to disentangle war-time accumulations from war-time holdings. Now, however, the balances have varied up and down in various cases since the war. There could be, for example, no justice in cutting increases in sterling balances which have taken place since the war and little logic in asking for a diminished sacri- fice from India because she has already had a considerable amount repaid (including repatriation of debt during the war).

(f) Finally, from our point of view the choice of "victims" for this formula is extremely difficult. It would have to apply to India, Pakistan and Egypt if any useful purpose were to be served. It would raise great difficulties with the gouthern Commonwealth countries; and with the Irish Republic (the bulk of whose holdings are in the hands of private individuals). From our own point of view there seems little object in dealing in this way with the sterling balances of the Colonies (other than Palestine). We are committed to assist them in vast develop- ment programmes, and insofar as the sterling balances are a source of finance for such programmes we should merely have to re-provide the money turned in by them for cancellation. The effect would

be that the Americans would have been persuaded into making a straight dollar gift to the Colonies and might well have subse- quent cause for complaint if immediately thereafter we showed our intention of reinstating the Colonies in their previous position.

8.

Nevertheless, we sum up by saying that the objective of getting rid of a great block of the sterling balances is so well worth while that we ought not to be deterred by the obstacles set out above from pressing forward with whatever form of these suggestions may seem most acceptable to the Americans. Success would take the sting out of one of the most difficult aspects of Anglo-American financial relations and be worth much more than the actual casage46566an American contribut Page 465 of 662lion would at present rates of exchange "kill" say £500 millions of the balances). It may well prove that the Americans would be easier to deal with than the Indians (and other holders). But if there

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