CAB129-52 — Page 167

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CAZINET OFFICE RECORD COPY

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(THIS DOCUMENT IS THE PROPERTY OF HER BRITANNIC MAJESTY'S GOVERNMENT)

SECRET

C. (52) 195

16th JUNE, 1952.

CABINET

771

COPY NO.

THE DOLLAR GAP: SECOND HALF 1952.

Memorandum by the Chancellor of the Exchequer.

I attach a report by officials on the balance of payments prospect for the second half of 1952 and for the first half of 1953.

2.

Although this forms part of the general picture of our economic position, it requires immediate consideration because unless very early decisions are taken we cannot hope to deal with the loss to the reserves in the second half of 1952. We are really faced with two problems: the immediate problem to which I have referred, and the medium-term problem, which will be dealt with in the further papers on the metal-using industries, external commitments, and so forth, which will be coming forward. Although in the medium term there is some direct connection between these series of papers, virtually the only way to deal with the situation in the next six months is by a com- bination of reducing the import programmes of Departments, increasing immediately

available and required exports such as coal, and arranging for the immediate sale of arms.

"

3.

As will be seen from Table 1 in paragraph 4 of the memorandum by officials, we can claim that so far our policies have had very definite results in checking the drain on the gold and dollar reserves. We cannot, however,

pect the continuation of abnormal receipts, chiefly the payment of overdue bills. Looking ahead, while the analysis in the memorandum does not represent any fund- amental change in the situation from that which has been set out earlier, never- theless I must warn my colleagues that, if we import the full programmes which Departments have put forward, and if there is no change in existing policies, we shall be faced with a loss of gold and dollar reserves of about £175 millions in the next six months. It is absolutely essential that we should get the programmes down within the limits of what we can afford to pay for.

4.

The harsh fact is that we are not recovering fast enough. The measures which we have taken have reduced the deficit, but it is quite certain that they will not eliminate it. On present policies, the "gap" is still too large to prevent another fall in our reserves, resulting in another crisis of confidence in sterling.

5. As I said in the House on Thursday, we must put the balance of payments first in all our considerations.

6.

D

This means that we must immediately take action to fill this gap of £175 millions bearing in mind the constant danger that events will once more move less favourably than expected. We must also take action, as proposed in the officials' report, to keep our forward commitments down, and to make our import system more responsive to the needs of our balance of payments position.

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