CAB129-53 — Page 116

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19.

Page Appendix will create much less difficulty than the the Plan

Let me consider the Commonwealth first. The

Page

lous one would

have done. The different treatment of sterling balances would be very helpful to Commonwealth countries. All that they would be required to do about their sterling balances would be to co-operate with us in producing an agreed assessment of the extent to which the balances represent a "sight liability" upon the United Kingdom economy. It should not be difficult to agree with them a statement showing that the immediate burden of the balances is a comparatively small fraction of what the outside world has come to believe. The sterling release agreements with India, Pakistan and Ceylon will remain unchanged under the new proposal. We should be able to give the Governments of the sterling Commonwealth rather longer to consider the proposals than was possible before, in the hope that it would be possible to announce the scheme as having their full support.

20.

We must now consider our European partners. Our immediate with- drawal from the European Payments Union has always been one of the most difficult implications of any move to provide convertibility. In the last four months, however, a great deal of thought has been given to this problem in Europe, and the ideas both of an early step towards convertibility and a floating rate have been ventilated much more fully than they had been previously. I think it is very likely that France and Belgium at any rate, and perhaps others, would follow any lead given by us. There may be indeed a possibility of concerted action over quite a wide field in Europe, and if the plan were adopted by us, it would be possible to have prior consultations with the French, Belgians and Scandinavians in time to permit them to concert with

Prior consultation with the Germans would also be desirable after the United States Government had been informed. It would, of course, be very much in our interest that all these countries should act at the same time, and it would greatly reduce the danger of loss of trade through discrimination against us.

us.

21.

Despite all its dangers, one great advantage of the Plan is that it has strong constructive possibilities and offers hope of fruitful collaboration with our partners in the Commonwealth and in Western Europe on lines which can lead, with American co-operation, to making sterling an effective currency.

22.

In conclusion I would say this. I believe that we need a concerted plan of action to improve our Balance of Payments and that such action must be launched in the right psychological atmosphere. If any alternative action which would achieve these ends can be suggested, I should be very glad to consider it. So far I am not aware of any alternative which is satisfactory.

Treasury Chambers, S. W.1.,

28TH JUNE, 1952.

R.A.B.