The British Gold and Dollar balances
1. Some time back, in different circumstances from the present, the President approved a line of policy which would permit the British gold and dollar reserves to reach solve figure between $600 million and $1,000 million. There was no agreement by the British to limit their reserves to this figure.
2. For some little time past the British reserves have exceeded $1,000 million, and may be increasing at a rate of some $600 million a year. This includes gold and represents, their total resources against growing liabilities in all parts of the world, which amount to six or seven times these reserves.
3. This increase in the British reserves does not reflect an improvement in their financial position. Their quick liabilities, largely caused by heavy cash out goings in the Middle East, are increasing at four or five times the rate at which the reserves against them have increased. Their net overseas position, in fact, is deteriorating at a rate of about $3 billions a year.
4. The increase in their gold holdings is due to certain receipts from South Africa and Russia. The increase in their dollar variances is due to their receiving the dollar equivalent of the local currency provided to meet the pay of America troops within the sterling area. Indeed, if it were not for the pay of the American troops the British dollar balances would be going down
5. Apart from certain raw materials, the British are already giving reciprocal aid to the fullest extent of American Government requirements. They have not: offered raw materials purchased by the U.S. Government in Great Britain and the Colonies on reciprocal aid terms. This would retard the growth of their balances balances by about $100 million a year, and by $200 million if India and Australia join in
6. The British argue that some growth of their reserves is indispensable to the delicate system they are operating by which they finance the war on credit throughout a large part of the world, and that the retention of some part of the above receipts, as a support to this credit system and an offset to a much larger increase of liabilities, is not open to legitimate criticism. They point out that the Russians are believed to hold gold reserves nearly double the total reserves of the British and have no significant liabilities against them. But, in the case of Russia, it is not at present proposed to require them to surrender any part of their reserves as a condition of further Lend-Lease assist
7. The British feel that they ought not to be aspect to agree to ceiling to their balances, since their reserve position must be their own concern, nevertheless, if the British argument is accepted as valid, the position could be regularized by a new Directive, which would set up a revised formula for the guidance American Departments. If the figure given by the new formula was being approached, then the whole question could be re-o
8. The new formula might provide that an increase in British reserves is not unreasonable if the increase does not exceed, say, 30 per cent, of the in-crease of British liabilitie
9. Figures furnished to Congress hitherto have not disclosed the full burden of British overseas liabilities, or their rate of growth. It might necessary to justify the new arrangement to provide that the information given to Congress in future should be fuller, and should show in some fashion, which would, not be dangerous to British credit, the growth of liabilities as well as the growth of reserves.
26th October, 1943