Britain's Postwar Dollar Problem

Britain's Postwar Dollar Problem

Britain's Postwar Dollar Problem

Britain's Postwar Dollar Problem

Excerpt

The inability to attain and maintain equilibrium on dollar accounts at a viable level of trade was one of the major economic problems faced by Great Britain in the postwar period. On the one hand, the dollar shortage posed the most serious threat to the maintenance of full employment; on the other hand, it precluded attempts to restore sterling convertibility and adherence to the principle of nondiscrimination in trade. In addition, it acted as a strong divisive factor in relations between the United Kingdom and the United States, the United Kingdom and the Western European countries, and the kingdom and the rest of the sterling area.

In this study, an attempt is made to analyze the basic factors responsible. It is hoped that setting the problem in its proper perspective will make a modest contribution toward evolving solutions. At the very least, it will indicate the sources of the difficulties, frequently a prerequisite for a meaningful attack on a problem.

DEFINITION OF THE DOLLAR SHORTAGE

For the purposes of this study a dollar shortage is defined as existing when, at an acceptable level of employment, real income, and import restrictions, the quantity of dollars demanded exceeds the disposable supply of dollars. The basic underlying consideration in this definition is that a dollar shortage entails more than a foreign exchange market phenomenon. The view that in the absence of a foreign exchange market disequilibrium a dollar shortage cannot exist is categoricary rejected. If, for example, a dollar-sterling balance is attained or maintained at the expense of an acceptable level of employment and real income or through the imposition of import restrictions above . . .

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