Sterling Balances

Report Outline
World Problem of British Indebtedness
Sterling Debts and the British Economy
Efforts to Reduce Pressure of Balances
Special Focus

World Problem of British Indebtedness

British suggestions that counterpart reductions of sterling credits held by countries of South and Southeast Asia be tied in with American aid to those countries in resisting Communist aggression have drawn world attention to the stubborn postwar problem of Britain's overseas indebtedness.

Because Great Britain was unable during the war to earn enough from exports to pay for heavy purchases of war materials in foreign countries, sterling balances in London grew rapidly during the war years. On June 30, 1945, six weeks before the end of hostilities, the balances stood at £3,287 million (equivalent to $13,247 million). At the end of 1949, they totaled £3,344 million (equivalent to $9,363 million since last year's devaluation of the pound). Approximately one-third of the outstanding sterling balances are believed to be “blocked” against current use by formal arrangements between Great Britain and creditor nations. An additional third of the balances is held under informal understandings which amount to voluntary blocking of the accounts.

British and American officials deny that any formal proposals for American aid in dealing with the sterling balances have been made to Washington. The London Economist (Apr. 29) characterized the suggestion contained in a memorandum submitted to the State Department in mid-April as merely “another exercise”—“an attempt to relate the problem of the sterling balances to the gradual tapering off of Marshall aid and to President Truman's Point IV programme.”