International Monetary Policy: The Sterling Area and the European Payments Union
IN THIS chapter we shall be concerned with the special problems of the sterling area and of intra-European trade. Since out of America's efforts to deal with the special problems of these areas there have developed certain modifications in her international monetary policies, we shall conclude this chapter with a summary of these policies as they appear to the author at the time of writing.
By the fall of 1945, the administration became convinced that little or no progress toward the realization of America's fundamental foreign economic objectives could be made without a solution of Britain's postwar financial problems. Not only was there no prospect of Britain's being able to relax her wartime exchange controls following the war, but Britain lacked even the dollar exchange to keep her industries operating and her people fed and clothed without outside assistance. In addition, under the sterling exchange system, Britain was responsible for the balance of payments of the entire sterling area, which meant that she had to supply at least the minimum dollar requirements of India, Australia, Egypt,1 and other members of the sterling area which had dollar deficits. Unless the pound were convertible, members of the sterling area as well as a number of other countries whose trade with nondollar countries was largely financed with sterling would be unable to abolish exchange and trade controls which discriminated against the dollar.2 Since nearly 40____________________