CAB129-45 — Page 311

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Balance ofɑlaysŋents

Page 312 49. Gold and dollar position.—As announced in the House of Commons on 5th April, the sterling area gold and dollar surplus in the first quarter of this year amounted to $360 million compared with $398 million in the last quarter of 1950, and the gold and dollar reserves increased over the quarter by $458 million, bringing them up to $3,758 million on 31st March. Very high earnings by countries in the Rest of the Sterling Area, particularly from sales of wool, cocoa, tin and rubber, are mainly responsible for this good result. In addition, we received $76 million during the quarter in settlements with the European Payments Union for the United Kingdom (and Sterling Area) surplus with the Union. The gold and dollar surplus was achieved in face of a decline in sterling balances on North American accounts of almost $100 million, a movement that almost entirely reversed the build-up of balances during the previous quarter. The drawings on the balances have in the main been used to finance current American purchases; there is no suggestion of a repatriation of funds.

50. Early indications suggest that a fall in the rate of surplus (which may prove substantial) is likely in the near future. United Kingdom dollar expenditure on imports is increasing, though fairly slowly; a seasonal decline in the Rest of Sterling Area dollar earnings, particularly from wool and cocoa, is to be expected; our surplus with the European Payments Union was very much reduced in March, involving a big decline in our probable dollar receipts, and though the future trend is uncertain, total dollar settlements this quarter are likely to show a big decline on last quarter's figure; finally, we must expect a steady increase in dollar spending by Rest of Sterling Area countries, signs of which are accumulating.

51. Sterling liabilities.—Alongside the increase in our gold and dollar reserves. sterling liabilities have been rising rapidly. The increase is confined entirely to sterling area countries, which have added £174 million in their holdings during January-February. Non-sterling area balances continue to fall slowly (by £44 million during the same period) reflecting the continued strength of the position of the sterling area as a whole vis-à-vis the non-sterling area.

52. United Kingdom General Balance of Payments.-The Balance of Pay- ments White Paper (Cmd. 8201) shows a United Kingdom surplus on current account of £229 million in 1950 as a whole and of £183 million in the second half- year alone. Recent trade trends suggest that, primarily as a result of increasing import prices, and a check to the expansion in the volume of United Kingdom exports, this surplus had probably entirely disappeared during the first quarter of 1951. This is of course, consistent with our expectations for the whole of 1951 as outlined in the Economic Survey.

European Payments Union

53. The United Kingdom net surplus with the European Payments Union in February 1951 was £33.6 million and in March £5.3 million, making the total United Kingdom net surplus £226-6 million for the period July 1950 to March 1951. After writing off £53.6 million against conditional aid and the use of £30.6 million of sterling balances by other countries to meet deficits with the Union, the United Kingdom has received £33-4 million in dollars and is in credit with the European Payments Union to the extent of £109.1 million.

54. Germany has almost exhausted the special credit granted to her by the European Payments Union but her balance of payments position improved sub- stantially in March and she had a surplus of $10 million with the European Pay- ments Union. At their meeting on 6th April, 1951, the Council of O.E.E.C. con- sidered Germany's position and made recommendations on remedial action to be taken by Germany and other O.E.E.C. countries to alleviate Germany's difficulties; arrangements were also made to keep the position under review in future. Austria and Greece are running into extreme debtor positions with the European Payments Union and Portugal an extreme creditor position; the Managing Board are considering how these shall be dealt with.