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United States Department of State / Foreign relations of the United States, 1947. The British Commonwealth; Europe

The British Commonwealth of Nations,   pp. 1-195 PDF (70.7 MB)

Page 12

by agreeing to cancel 220 million and £10 million, respectively, of
balances which they hold.
  The settlement with Italy is interesting in that it is the first agree-
ment by a country to hold a certain minimum balance below which
it will not draw down its sterling. The Argentine accepted an agree-
ment which provided for the release of £5 million per annum for four
years, but this arrangement will probably be superseded by the re-
patriation of the railroad securities which will wipe out all the
  From this brief review it is evident that the position taken by
holders of the balances varies widely. Some have accepted the British
proposals and others have found them completely unacceptable.
                 THIE SITUATION ON JULY 15 1947
  As noted above suitable arrangements have been completed or are
in prospect Kwith many of the countries holding the balances. It is
probable that agreement will not be reached with other countries be-
fore Section 10 of the Financial Agreement becomes operative on
July 15. The British will then be required either to take unilateral
action in these latter cases or to request a postponement of the ef-
fective date of Section 10. Both of these alternatives are extremely
distasteful to the British and the choice is an unpleasant one. On the
one hand, unilateral action, whatever it is called, will have to be
tantamount to blocking some portion of the balances. The whole
concept of "blocked sterling" is something which the British are
very anxious to avoid so far as possible because of the harmful effect
it will have upon sterling as an international means of payment. A
currency which has tendency to get itself "blocked" is not a very
useful medium of exchange or a safe repository for foreign exchange
reserves. These are important considerations for many reasons, not
the least of which is that any increase in sterling balances represents
essentially a credit to Britain which contributes to its ability to
finance its deficit in current payments. British officials in discussing
this problem usually object to the use of the word "blocked" in
ence to the balances. They point out that they may now be used
freely anywhere in the sterling area. After July 15 this will no longer
be possible except for whatever portion of the balances is freed for
payments anywhere.
  Presumably unilateral action by the British would take the form
of a statement to each country not voluntarily consenting, that from
July 15 a specified portion of its balance is at its free disposition,
possibly over a four year period, and that the remainder cannot be
used for any purpose (blocked). Considerable administrative and
mechanlical difficulties will arise for the British if this unilateral

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