Letter from Frederick H. Boland to Leo T. McCauley/Cornelius C. Cremin¹ (Dublin)

Assistant Secretary.
An important question for us is, of course, the effect which Marshall Aid, if given, is likely to have on the convertibility of the pound sterling and the general position of the sterling area. Things are not sufficiently crystallised here to enable even a preliminary answer to be given to this question, but it is well perhaps to point out at this stage one or two factors which are pretty certain to enter into the account when an answer comes to be given.

An important point to be remembered is that Britain has stated her dollar needs under the Plan as the difference between her own estimated imports from, and her own estimated exports to, the dollar area for each of the four years of the Plan, all invisible items being brought into the account. As the whole essence of the Marshall Plan is that the aid which the participating countries receive is essential for their own recovery in accordance with the targets set in the Paris Report, I cannot imagine the Americans agreeing to any arrangement under which, at any time during the four year period, there would be any diversion, either of the dollars received by Britain from America or of Britain's own dollar earnings abroad, to meet the dollar needs of countries in the sterling area other than Britain herself. This goes for Ireland, of course, as well as for Britain. This may be a pessimistic forecast, but I don't think it is. Britain's statement of her dollar needs in relation to her own dollar earnings, and the intimate interrelation established between the two things in proposals put forward to the Americans as a plan for securing equilibrium in Britain's balance of payments at the end of the given period, exclude, to my mind, any possibility of Britain's current dollar receipts being treated as part of the general reserves of the sterling area during the currency of the Marshall Aid programme. If this is correct, the precise position of the dollar pool - if not of the sterling area itself - once the Marshall Plan goes through would seem to become somewhat of a puzzle.

What the Marshall Plan will do, of course, is to relieve the remaining reserves of the sterling area of the burden of the dollar requirements of both Britain and ourselves. These should be met under the Plan. Whether what is left will suffice to cover the essential needs of the other countries, and keep the sterling area in being over the period of British recovery, is rather a question. I gather that both the British and the Americans have been doing some thinking about this. India is the big difficulty, and the solution which both the British and the Americans seem to have in mind for her case is a substantial dollar loan. Australia may also be encouraged to borrow, thereby making things easier for New Zealand. Unless I am very much mistaken, we in Ireland will find ourselves largely, if not wholly, dependent for our dollar requirements over the next few years on what we succeed in getting under the Marshall Plan. That makes it important from our point of view that the Plan should succeed and that the amount voted by Congress should be adequate to the needs stated in the Paris Report.

A point which is perhaps worth mentioning here is this. At the end of the period of Marshall Aid, our dollar needs and earnings will be in little, if any, better balance than they are now. When Marshall Aid ceases, we shall be thrown back as before on whatever degree of convertibility our sterling earnings can by that time command. No doubt, by then Britain will have achieved a far sounder position than she has now, but, in my view, a very considerable interval is likely to elapse between the ending of Marshall Aid and the re-establishment of the convertibility of the pound sterling, on however limited a basis. What are we to do during this interval? If the attitude of the British Treasury and Board of Trade officials here is any guide, Britain will regard her own payments position with the dollar area as the primary consideration in future. Once it is secured, she won't endanger it out of any sentimental regard for the prestige of the British pound! Sterling convertibility, if it is to return at all, may come only after restoration of exchange convertibility over a fairly wide area in Europe, and European countries, which in the past covered their dollar deficits by means of their surplus exports to Britain, are likely to have difficulty in doing so in future. Everyone here knows that this attitude was at the root of the British unwillingness to commit themselves to the Paris scheme for the multilateralisation of European payments. No doubt, we may reasonably expect to be able, by means of special arrangements, to do better than other European countries in this regard; but the point is perhaps one to be borne in mind and the moral of the story, as it appears to me, is that the more we can do over the coming years to narrow the gap between our dollar needs and our dollar earnings, the better it will be.

The form in which the American aid is given will be a matter of some practical importance. It seems now pretty certain that, in order to satisfy Congressional opinion, it will be necessary to entrust the administration of the Marshall Plan on this side to a gigantic American corporation - something halfway between the WPE and the Reconstruction Finance Corporation. The prospect is bad for the European countries but it has to be faced. The big question now is how the corporation will operate - whether, in addition to examining applications and making allocations, it will do the actual purchasing itself or whether it will confine itself to approving purchases and allocating supplies, leaving the countries concerned to do the actual buying either governmentally or through ordinary commercial channels in accordance with their own wishes. We have been devoting great attention to this question and are doing our best to secure adoption of the second method. The most likely outcome, however, is that the corporation will operate both methods. It will probably do the actual purchasing itself in the case of basic commodities in short world supply, and also perhaps in respect of certain classes of raw materials and semi-manufactured products of special importance to the American economy. As regards other goods, it will merely examine applications and make allocations, releasing dollars to the countries concerned and leaving them to do the procurement.

This point is of special importance as regards dollar markets other than the United States. We have pressed very strongly that the Marshall Plan should cover Western Europe's dollar needs, not only in the United States but in other American countries as well. I think that the Administration have at least accepted this view, though what the Congress will think of it, when the point comes before them, remains to be seen. Assuming, however, that the operations of the Corporation are to extend to these other dollar markets, the difference between the 'financial' and the 'commodity' approaches in meeting European requisitions will take on a special importance. The point is this. If an American corporation expends large sums of dollars in Canada and the countries of South America in purchasing supplies for shipment to Europe, the inevitable result will be to impart a new impulse to United States exports to those markets, enhancing the difficulties which the European countries are going to have in any case in developing the export outlets required to replace their lost invisible exports and postponing the achievement of that balance in Europe's external payments which it is the main purpose of the Marshall Plan to bring about. Contrariwise, of course, if the European countries are given dollars expendable in American countries other than the United States, they can bring these dollars within the framework of their existing commercial and payment agreements with the countries concerned and use them to create increased outlets for their exports in those markets. The point is specially relevant in the case of Britain and has an interest for us in view of the obvious tendency of the British to prefer South American orders to those of 'safe' European customers in making export allocations. Of course, the expansion of European exports to dollar countries in this way would, by increasing the current dollar earnings of the European countries concerned, operate to reduce the total amount of dollar aid which they could expect to receive from the United States under the Plan; but, on the other hand, there is probably not one of the countries concerned which, if it is given the chance, will not go for the prospect of establishing a stable dollar market for its exports, even if it means a sacrifice of gift dollars under what is, after all, a very short-term scheme. I know that, both from the psychological and practical points of view, Britain will regard herself as greatly inhibited in her task of achieving equilibrium in her balance of payments if the Marshall aid is granted to any appreciable extent in commodities rather than by way of dollar availabilities.

These are rather discursive comments; but the considerations to which they relate are occupying a big place at present in the minds of people here. I thought it well to mention them at this stage in view of the potential importance they have in the context of our own foreign payments position.