over, and with Congress unlikely to agree to fund
the arrangement in peacetime, Truman abruptly
ended Lend-Lease.
Something had to be done about the yawning
dollar gap that was immediately in prospect.
Britain’s most distinguished economist, John
Maynard Keynes, was despatched to Washington
to negotiate a loan to tide Britain over. The
Lend-Lease debts now had to be settled. This
seemed especially unjust in British eyes since the
money had been spent fighting the common
enemy: furthermore, Lend-Lease had been made
available only in 1942 when Britain had been at
war for three years. By then Britain had already
spent most of its foreign reserves and assets. The
Lend-Lease debts were settled with a loan, not
cancelled. A loan of $3,750 million at 2 per cent
interest was granted to Britain to overcome its
dollar shortage. Repayments were to begin in
1951 in fifty equal annual instalments. The loan
was not as much as Britain had hoped for but the
Canadians helped with an additional $1,287
million. The total was sufficient to cover Britain’s
own immediate needs, including those of the
British zone in Germany, though not those of the
whole sterling area.
There was also the serious problem of the
‘sterling balances’. (If all the sterling-area coun-
tries sought to convert their holdings of sterling
at the same time, Britain could not have paid and
would therefore have defaulted.) At Bretton
Woods, Britain had reserved to itself the way it
would settle the large sterling balances with its
creditors during the transitional period, rather
than accepting American help and making a joint
Anglo-American approach to its creditors. Britain,
with some justice, was suspicious of US anti-
imperialist attitudes and did not wish the
Americans to be able to meddle in Britain’s
Commonwealth and colonial relationships.
Nevertheless these sterling balances were a
Damocles’ sword overhanging the British
economy because they were so large at $3,355
million. The US, in loan negotiations concluded
in December 1945, made it a condition that
within one year of drawing on the loan (that is,
early in 1947) all current transactions by all the
sterling-area countries should be freely convert-
ible. As for the huge credits, the parties could do
no more than reach an agreement in principle,
without figures attached: some small part of these
balances were to be immediately convertible to
dollars; another tranche would become convert-
ible in 1951; and as regards the rest Britain would
seek agreement to write them off. Without figures
this was a pretty meaningless arrangement except
that in some magical way, which no one could
really envisage, the sterling balances would be
made to disappear. There was much opposition
to these American conditions in Britain, but there
was little choice. They were accepted.
In February 1947 Britain honoured the loan
agreement and made sterling convertible. The
result was a disaster. The British treasury could
not control all the countries that now converted
sterling into badly needed dollars. Not only
current transactions as provided for in the loan
agreement but some sterling balances held by
other countries were converted as well. In August
1947, with the dollar reserves near exhaustion,
Britain was forced to suspend convertibility. Its
recovery was not far enough advanced to stand
the strain. Exchange control was reintroduced
and thus one important plank of Bretton Woods
was abandoned. The Americans had misjudged
the situation and had forced the issue of free con-
vertibility too soon. By the 1950s sterling became
partially convertible and in December 1958,
almost thirteen years from the time of the first
dollar loan, it became fully convertible. By then
West European exports had recovered, the
European dollar gap had disappeared and
American overseas trade and expenditures were
beginning to move into deficit. Other planks of
Bretton Woods, however, continued to function
for three decades. Fixed exchange rates were
adjusted from time to time until they were aban-
doned in the early 1970s. Back in 1947, for
Britain and Europe the situation would have
become serious, with a new dollar gap in prospect
once more, had not Marshall Aid come to the
rescue the following year.
The effect of these abstract financial matters on
the lives of ordinary people in Britain was very
damaging. The man-made financial crisis came on
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