Full text of Marriner S. Eccles Papers : Letter to Marriner [Eccles], Box 11, Folder 2, Item 14

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'HE SECRETARY OF THE TREASURY
WASHINGTON25

DEC 1 s> 1945

Dear Marrinert
There is attached for your files a photostatic copy of the Financial Agreement with the
United Kingdom which was signed on December 6,
1945.
Very truly yours,

Secretary ofnflifi-#reasury

Mr. Marriner S. Eccles
Room 2046
Federal Reserve Board
7/ashington, D.C.

Enclosure

r
.IELJ.

THE SOVLriNiLItfS Jb TiiE U M T L U
i, Tilt J I U T L D KINGLOU

It is hereby agreed between the Government of the
United States of America and the Government of the
United Kingdom of Great britain and Northern Ireland as
follows:
1.

Effective date of the A^reeir.ent. The effective

date of this Agreement shall be the date on which the
government of the United States notifies the government
of the United Kinraom thut the Congress o£ the United
States has rr.ace availacle the funds necessary to extend
to the Government of the United Kingdom the line of credit
in accordance with the provisions of this Agreement.
2*

Line of crec.it.

The Government of the United

States will extend to the Government ol the United Kingdom
a line of crecit of v 3,750,0GJ,JJG which :nay be drawn
upon at any time between tne effective ante of this Agreement
and December 31, 1951f inclusive.
3.

Purpose of the line of credit*

The purpose of

the line of credit is to facilitate purchases by the
United Kin :do:n o'£ goods and services in the United States,
to assist the United Kingdom to sieet transitional postwar
deficits in its current balance of payments, to help tiie
United Kin^dora to aaintain adequate reserves of ^oid and
dollars, a-:d to assist the Government of the United Kingdom




to assune the obligations of nultilateral trade, as defined in this and other agreements.
4. Axortization and interest,
(i) The amount of the line jf credit drawn by
December 31, 1951« shall be repaid Is 50 annual installments betjinnin^ on December 31, 1951, with interest at
the rate of 2 percent per annun.

Interest for the year

1951 shall be computed on the amount outstanding on
Decenber 31, 1951, and for each year thereafter, interest
shall be computed on the amount outstanding on January 1
of each such year.
Forty-nine annual installments of principal repaynents and interest shall oe equal, calculated at the rate
of v'31,'323, XX) for each £1,000,000,000 of the line of
credit drawn by December 31, 1951, and the fiftieth annual
installment snail oe at the rate of $31,640,736.65 for
each sjch £1,000,000,000. Each installment shall consist
of the full amount of the interest due and the remainder
of the installment shall be the principal to be repaid
in that year.

Payments required by this section are

subject to the provisions of section 5.
(ii) The Government of the United Kingdom may
accelerate repayment of the amount drawn under this line
of credit.




5. aaiver of interest payments. In any year in
which the Government o: the United Kingdom requests the
jovernaent of tne United States to waive the amount of
the interest :.ue in the installment of that year, the
Government ol' the United States will ^rant tne waiver
if:
(a) the Tioverruient of the United Kin-dom
finds that a waiver is necessary in view of the
present 'and prospective conditions of international exchange and tne level JI its rold and
foreign exchange reserves and
(b) the International Monetary rund certifies
that the income of the United fvinLfdom from homeproduced exports plus its net income from invisible
current transactions in its balance of payments
was on the average over the five preceding calendar
years less tuan the averse annual amount of United
Kin-'dora imports daring 1936-8, fixea at fe3<^ million,
as such figure may ue adjusted for changes in the
prioe level of these imports, kny amount in excess
of ^43,750,0JJ released or paid in any year on
account of sterling Dalances acciinulated to the
creiit of overseas governments, monetary authorities and banks before the effective aate of this
Agreement shail be regaraeu as a capital transaction
and therefore shall not be included in the above




c a l c u l a t i o n of t:.e net income from I r . v i s i l e
rer.t t r a n s a c t i o n s for t h a t year.

car-

If waiver is

requested for an i n t e r e s t payaient

>rior to t h a t

iuc i;* 1JCV>, t..e ^vtrs..-*e inc~::.e shall ^e computed
for

~.e c a l e . d t r years from 1*50 through tne year

;-receui:.^ t i . ^ t i:. WLAC^
C.
t i o n s.

t:.e r e - ; u t : t i s ;nade.

ueli-.tior. of t : . i s l i n e of c r e d i t

(i)

to jt.>er

JLH••a*

I t i s u n d e r s t o o d t h a t any amounts r e q u i r e d to

ciisch?«r£e j b l i •'•• t i o - i s of ti.e United Kin uc. to U i i r d coa:.t r i e c o u t s t a n d i n g or. t ^ e ^ f i e c t i v c

a&te J£ t h i s

w i l l be found f r o r. r e s o u r c e s otr.fr

than t h i s l i n e of c r e d i t

(ii)

The jovernment j f

a r r a n g e any l o r » - - t e r ;

t:.e United Kin ; ;don w i l l not

l o a n s fro.i)

b r i t i s h Commonwealth a f t e r

k^reement

r

overn . e \ t s w i t h i n the

'^ecer.oer

r

,

Ly*io, and

tc^-re

the e : ^ of 1951 on ter.TtS uore L'avor&.ule to t:.e l e n d e r
than t h e ter::.s oi t : . i s . i ; . t 3f c r t u i t .
(iiij
ailovje^

.<aiv^r of i n t e r e s t w i l l n o t oe r e q a e s t e d ^r

under section 5 i.\ arij year UMess tne ^ * TC •• • tt

of ti.e r e l e a s e s ^r payments in C^fct year - f s t e r l i n g b a l ances accumulated to cue cr< : i t ^f overseus

'overamer.tsj

monetary a u t h o r i t i e s and barncs [ e x c e p t in t;.e case jf
c o l o n i a l dependencies J before

trie e f f e c t i v e

date

agreement i s reduced p r o p o r t i o n a t e l y , ar.ci lr.iess
payments due in t h a t year or> loans r e f e r r e d
above are v/aived.




i t:.ic
interest

to Lr. [ i i >

The p r o o o r t i c n a t e r e i i c t i c r .

:" f.:.t

releases or :ay.:.c:*ts oi sterling balances shall be calcil&ted in relation to the aggregate released and paid
in the

ost recent ytar in wiuch waiver of interest was

not requested.
(iv)

Che application of the principles set forth

in tr*is section s^ail oe cue s-ioject of full consultation
between t .e t.vo governments as occasion may arise.
?•

Sterling area exchange arrangements.

Trie Government oi' the United Kingdom will complete
arrangements as early as practicable ana in any case not
1'- ter than one year after trie effective aate of this
ikgreement, unless in exceptional cases a later date is
aeree- upon alter contultetion, under which iiimediately
alter tne completion oi' such arrangements tne sterling
receipts from current transactions of all sterling area
countries (apart from ~ny receipts arising out of military
expenditure by the government of uie Jnited Kingdom prior
to December 31, 1*46, to the exte.it to v.nich taey are
treateo Dy agreement vitn the countries conceraea on tne
sane basis as the bala-ic^s Bc^a.nuiatea during the w>,.r)
will be freely available for current transactions in any
currency ^res without discrimination; with the result
that any discrimination arisin: i'ro.ii the so-called sterling
•ire:- dollar pool will be entirely re.noved and that each
member of the sterling area will have its current sterling
and dollar receipts at its i'ree disposition for current



transactions anywhere.

3.
(i)

Otner exchanre arran*e.:.ents.
The jOTerrment of the United Kingdom agrees

that after the e l e c t i v e date of tnis A^ree.Tent it will
not apply exchange controls in such a aanner as to r e s t r i c t
v a;

payments ^:> transfers in respect jf products of tne

United States permitted to be importee into the United
Kingdom or other current transactions between tne two
countries ^r [b) the use of sterling balances to the
credit *,£ residents of tne jni ted states arising oat of
current transactions.

Nothing in tnis paragraph ( i ) snail

affect t.ie provisions jf a r t i c l e VII ol" tne a r t i c l e s of
Agreement of the International Monetary tuna when those
a r t i c l e s nave come into 1'orce.
(iij

*:ie }.'VerniT.e:its of tne United States aad the

United Kin.^do.ii a,^ree that not xLter tnen ^ne ,/ear after
the effective aate jf tnis A^reementi unless in exceptional
c?ses a later iate is agreed upon after consultation f they
will impose no restrictions on payments a:id transfers l'or
ciiTer;t tre.asactlo..s.

i^e jbliL*ut'ior.s jf tnis paragraph

( i i j s..ali nut ap^ij:
(aj

to balances of third countries and

tx*eir nationals accun^lated before tnis paragraph

(ii) .eco.r.es effective; or
[b) to restrictions imposed in conformity
with tne articles of Agreement of tne international



Monetary rani, provi^t:; th t ti*e ioveranents of
the United Kingdom ana t:.e United ot- tes will
not continue tv invoke t.e provisions ^i* article
XIV, Section ' of ti*ose articles alter tnis
p^ra -rach (iij oec^nes effective, unless in
exceptional cases after consultation they e^ree
otherwise; or
(c) to restrictions i:.poj>ed in connection
with measures aesirned to ancover and dispose oi"
assets of aer:pany ana Japan.
(ill) This section and section J, which are in anticipation of ,;.ore comprehensive arrangements by multilateral
agreement, shall operate until December 31, 1951.
9.

Import nrrLii^enu-nts.

If either the 'Joverument

of the United States or tne jovemnent ol* ti^e Unitea
Kingdom imposes or maintains quantitative import restrictions, such restrictions shall be administered on a basis
which does not discriminate against imports from tne otner
country in respect of any product; proviied that this
undertaking; shall not apply in cases in which (a) its
application would nave the effect of preventing tne country
imposing such restrictions from utilizing, for the purchase of needed imports, inconvertiole currencies atcumulated up to UecemDer 31, 1946, or (b) there may be special
necessity for the country imposing such restrictions to



assist, by .:»eafoires not LnvolTi&g a substantial departure t>oa tr.e -er.erai rale of non-discrimination, a
co IT.try whose econoxy has been disrupted by war, or
(c) either -overnx.ent imposes quantitative restrictions
having equivblent effect to any exchange restrictions
' which that •overrnient is authorized to impose in conformity witn Article VII of txe Articles of Agreement
of the International uLonetery i-und.

Fhe provisions of

t* is section shall become effective es soon as practicable
but not later than Lfecember 31, 1S46.
10.

accumulated sterling oalances.

(i)

Tr*e government of the United Kingdom intends

to alike a.;ree::.ents with the countries concerned, varying
accordir.r to the circumstances of each case, for an early
settlement covering the sterxinr oalances accumulated by
sterling area and other countries prior to such settlement
(together with any future receipts arising out of military
expenditure by the jovernment of the United Kingdom to
the extent to which they are treated on tke same basis
by agreement with the countries concerned).

The settle-

ments with the st$rlin£ area countries wiil be on the
basis of dividing these accumulated balances into three
categories (aj balances to be released at once and convert! cle into any currency for current transactions,
(b) balances to be similarly released by installments
over a perioa jf years beginning in Iy51, and (c) balances




tc be ecrus:ed as a contribution tc ti.e settlement of
w r and postwar indectedness i:.i in recognition of the
benefits wi.ic;* t..e countries concerned :ri -ht be expected
tc -ai r . from such a settlement.

i:*e jovernaent of the

United Kingdom will r:.aKe evei\. er.ctavor to secure the
early completion of tnese arr-i.^e.r.ent::.
C11;

In consideration of tne :'act thtt ar. important

purpose of the present line o:" c r e d i t is to ;:ro,:.ot€ tne
development Ji' multilateral tr^ae and f a c i l i t a t e i t s early
resumption on a non-discrirr.inator) u a s i s , the Jovemnent
af the 'Jnited Kir.^aom agrees that any sterling oa la rices
released ^r otherwise avuilaule for current payments w i l l ,
not .P. t e r than one year a f t e r

tne e f f e c t i v e a a t e of

this

Agreement unless in special cases a later date is agreed
upon after consultation, be freely available t'jr current
transactions in any currency area witL» »! liscrir.iLr.tion.
11.

vtfinit

i o n s.

For CiiC purposes ol this k>"reer.eht:
[i]

rhe ter::. "current trar»j ctioas" s^all

aave tne neanin^ prescriteJ in a r t i c l e AIX [ i ]
af t^e Articles of A-ree.r.er.t ^f U.e International
. onetary run -.
(ii)

["in ter.n "sterling area" ucans tLe

United Kin *do:n and tx.e o t n t r territories



»eclnred

by tne Defence [Finance) (definition Df 6terlin

Area) (*'o« ~) Or.^r, I J U , to be included in
the sterling arct, :;a::;tly "the following te: i ri
tcries excluding Jar.aja und Newfoundland, that
is to s s y —
ia)

any ^o.r.inlon,

Uj

ar.y other p^rt JT His aiajest^'s
i o :.n in i 9 n s f

(?)

any territory in respect of which
a nandfcte an Lehslf of the Lea-ae
of Nations ..as Let:, accepted by
::Is Majesty arid i s oeir.•• exercised
by
...ajt^ty's j^\errK r ,e:.t in
y His
His ...aj

the United Kinjdor or in any
Dominion,

(a)

a:iV jritisr. protectorate or protected
State,

(e)

Egypt, tae Anglo-Egyptian Sudan and

Iraq,
(:)
12.

Iceland and the raroe Islands."

Consultation on Arree.Tient.

Either ^overrment

shall ce entitled to approach the other x'or a reconsideration of any of tue provisions of t h i s Agreement, if
in i t s opinion tue prevailing conditions of international




- 11 .
exchange justify such reconsideration, with a view to
agreeing upon modifications i'or presentation to their
respective legislatures.

Signed in duplicate at Washington, District of
Columbia, this 5th day of December, 1945.

For t h e 30VEKIWENT OF HIE UNITED STAPES J F

Secretary OJE the Treasury
of the United States of America

For t h e 3OVE&&&NT JF IKE UM1ED KLNSiXM OF GKEAT




HEiui liwEUL\D:

His ^a^e^ty^s Ambassador Extraordinary
and Plenipotentiary at Washington