The Bankers Strike Back: The Anglo-American and Anglo-Canadian Financial Agreements of 1945-1946

The commodities and markets research group will meet again on Monday, May 18, from 11-noon in HSSB 4020 to discuss George Fujii’s paper “The
Bankers Strike Back: The Anglo-American and Anglo-Canadian Financial
Agreements of 1945-1946.” George will provide a brief introduction to
his work, which is part of his dissertation, but we will devote most
of our time to discussion of his paper. The paper will be circulated by
email; contact Lisa Jacobson jacobson@history.ucsb.edu.
A description follows below:

“Justice,” “Temptation,” or “Austerity.” In the words of John Maynard
Keynes, these were Britain’s choices in 1945 as it sought large-scale
U.S. aid in order to stabilize its financial position and rebuild its
war-torn economy. Keynes, dispatched by the British government to
Washington as its lead negotiator, thought he could obtain “justice,”
or a U.S. grant of about $5 billion to Britain plus favorable
consideration of wartime debt. He appealed to the sense of justice of
his American counterparts, arguing that Britain’s earlier wartime
sacrifices entitled it to favorable consideration.

Nations rarely show gratitude, though, and Britain instead obtained
the option that Keynes had feared most–“temptation.” This was a U.S.
loan of $3.75 billion at an attractively low interest rate (2%) but
with two key conditions–an early deadline for sterling convertibility
and ratification of the 1944 Bretton Woods agreement. Not only was
the loan balance lower than expected, but an early date for
convertibility might well strain Britain’s financial resources and
lead to a run on sterling. For U.S. policymakers and leading
internationalist bankers, though, early sterling convertibility would
be an important first step in pushing their global freer trade agenda
and opening up Britain’s protected domestic, colonial, and
commonwealth markets.

Making up the missing $1.25 billion was Canada, whose government
sought to ensure that its access to British markets would remain
unimpeded and that it could retain its traditional trading pattern of
running surpluses to Britain and deficits with the United States. In
Canada, the loan negotiations became wrapped up in nationalist
rhetoric, while in the United States, other domestic concerns would
intrude onto an ordinarily somewhat dry, economic policy matter. This
is then the story of a path to temptation and its consequences.

hm 5/11/09