Draft Memorandum of Conversation1

top secret


State Department Mr. Willard Thorp
Mr. Harold Spiegel
ECA Mr. Jas. A. McCullough
Treasury Department Mr. Wm. McC. Martin
Mr. C. Dillon Glendinning
Mr. Wm. B. Hebbard
British Representatives Sir Henry Wilson-Smith
Sir Sydney Caine
Mr. Robert Hall
Mr. Allan Christelow
Mr. Edgar Jones

Sir Henry Wilson-Smith said that the British had found the exchange of views with the U.S. representatives very profitable and stressed the importance of continued informal contact between the two governments. He stated that the British were going away with somewhat less optimistic views than when they had come. In summing up the discussions he said there were three factors which he would like to mention: (1) Britain’s own difficulties at home; (2) Developments in the United States economy; and (3) His impression of the current state of U.S. thinking on such questions as non-discrimination, convertibility, and exchange rates. He said—and indicated that he did not mean to be wholly facetious—that he thought Britain could live with any two of the factors but that he doubted that it could live with all three.

[Page 782]

With respect to Britain’s own difficulties, Sir Henry indicated that Britain was going through a difficult period. Up until now there had been a steady improvement in Britain’s dollar position. He said that there was now a reversal in this trend and that he expected the down turn to continue. He indicated that the picture which the government would present in its semi-annual report would be a gloomy one.

Concerning developments in the U.S. economy, Sir Henry indicated that the change from a seller’s to a buyer’s market would present increasing difficulties for Europe in meeting the dollar problem. He indicated that from the American point of view some adjustment was considered inevitable, and, barring a serious recession, would be a return to a more normal state of affairs. Noting that some further decline in business activity here appeared likely, he said he need not dwell on the worries which this occasioned in Britain and elsewhere.

Regarding current U.S. thinking, Sir Henry indicated that he thought the areas of difference between us did not concern ultimate objectives, but rather were in terms of the feasibility of steps at this time looking toward a greater degree of non-discrimination and convertibility. He stated that the British view was that the next stage must be a freeing of trade within Europe and the rest of the soft currency area.

As had been indicated by the British in previous discussions, it was their view that unless steps were taken in this direction in the near future, the trend would be toward a greater degree of bilateralism than at present. He stated that the freeing of trade within the soft currency area should help reduce costs and make an ultimate contribution toward multilateralization of trade throughout the world. He indicated again that they had not been able to look far enough ahead to see how and when the barriers between the hard currency and soft currency areas might be reduced, but the British were sure that the proposals they were making would be a contribution in the right direction.

In this context, he referred to the American proposals on intra-European payments providing for some degree of convertibility of payments rights as illustrative of the difference of views as to the steps which might be taken now toward nondiscrimination and convertibility.

Concerning exchange rates, Sir Henry stressed the desirability of taking steps which might reduce current speculation and asked American cooperation to this end. He said this should be done quite apart from whether the U.K. had been pursuing a policy of deflation and expected to continue to do so. He indicated that the pressures which would accompany a devaluation would force a reversal of this policy.

Concerning the International Monetary Fund, he said that it was clear that London needed to reconsider its position both with respect [Page 783] to the short and long term operations and functions of the Fund. He said that the British could see the disadvantages of dissipating the Fund’s reserves at this time even though the British could not support the criteria for Fund drawings submitted by the U.S. Executive Director.2 He indicated that he hoped that matters could be handled reasonably in the Fund and that probably the U.S. and U.K. views were not so far apart as might be indicated by a debate on the U.S. Executive Director’s paper.3

Sir Henry made some further comments on the problem of liberalization of trade in Europe. He said he realized the difficulties the U.S. faced in considering any modification of Section 9 of the Anglo-American Financial Agreement.4 He said further, he realized that modification of Section 9 might raise the question of a revision of the entire Agreement at this time. However, on the economic side, he said there were only three alternatives: (1) Continue with present bilateral arrangements; (2) For the U.K. to take the leadership in reducing trade barriers in the soft currency area; (3) Go back to a more rigorous type of clearing arrangement based on bilateral negotiations.

Mr. Martin stated that the U.S. representatives had also found the exchange of views profitable and agreed as to the desirability of continuing informal consultations with the British on the broad range of problems of mutual interest. He indicated that he thought the exchange of views between the Treasury and the British on the Fund had been particularly helpful. He was doubtful if our discussions on the Financial Agreement had been profitable for either side.

Regarding devaluation, Mr. Martin said that he wanted only to stress two points: First, the critical importance of timing of any moves which might be made in terms of developments here as well as in Europe. Second, the importance of consultation prior to action. In this connection, he referred to the role of the Fund.

Mr. Thorp said he wished to stress the need for close cooperation in this current period. He said that we had passed out of the honey moon phase of the ERP program, a period of extreme shortages and one in which the objectives were relatively simple, namely, to increase output, to a period in which the problems of adjustment were more complex. He said that now there would be a tendency both in Europe and the United States for a resurgence of nationalistic points of view, especially in the fields of commercial and trade policy. He said that [Page 784] failure to cooperate closely would give encouragement to those nationalistic elements in all countries which would defeat our mutual longrun aims. He mentioned in this context the U.K.-Argentine Agreement as illustrative of the difficulties which arise without adequate cooperation.

Mr. McCullough said that ECA in its individual conversations with British representatives had probably been more specific than either the Treasury or State Departments. He said that this arose in part because of the direct operating responsibility of the ECA for the European Recovery Program. He said that the two matters on which the ECA felt it essential to express specific views to the British were on the importance of action on exchange rates and on the need for revision of the intra-European payments arrangements.

  1. The source text bears no indication of the drafter, but the meeting took place in Martin’s office and so the memorandum presumably was prepared in the Treasury. No other record of Wilson-Smith’s conversations has been found in the Department of State files.
  2. Frank A. Southard, Jr.
  3. Not found in Department of State files.
  4. For the text of the Anglo-American Financial Agreement, signed at Washington, December 6, 1945, effective July 15, 1946, see Department of State Treaties and Other International Acts Series (TIAS) No. 1545; for documentation relating to its negotiation, see Foreign Relations, 1945, vol. vi, pp. 1 ff.; Section 9 of the agreement dealt with import arrangements.