201. Current Economic Developments1
CREDIT ARRANGEMENT AND IMPROVED TRADE FIGURES BOLSTER STERLING
The President of the Bank for International Settlements and representatives of twelve central banks reached tentative agreement at a July 7 meeting in Basel on a new 10-year, $2 billion credit for Britain for support of the pound.2 The credit is to be used to offset fluctuations in the sterling balances held by sterling area countries. The object is to strengthen the position of sterling and thus of the international monetary system as a whole. The next step is for Britain to consult with the central banks of [Page 567] sterling area countries, after which the arrangement is expected to be completed at the September meeting of the central bankers in Basel. Chancellor of the Exchequer Jenkins told House of Commons that the arrangement would not result in an increase of UK liabilities to foreigners, would not affect the need for achieving balance-of-payments surplus, and would not necessitate further deflationary measures.
Sterling rallied following the announcement of the Basel arrangement, and confidence was further bolstered by the considerably improved June trade figures. The visible trade deficit declined to 50 million pounds, compared with a deficit of 86 million pounds in May. Exports increased by 10 million pounds to 508 million pounds, imports declined by 39 million pounds to 609 million pounds (excluding US military aircraft). The cumulative trade deficit, excluding military aircraft, for the first half of 1968 totaled 418 million pounds.
The monthly assessment by the British Treasury led off with a statement that consumer spending had fallen off sharply since the budget. Although imports eased in June, their level is still substantially higher than forecast in March. Exports have moved closer to the expectation at the time of the budget. The main effect up to now seems to have been on prices, with the major increases in volume yet to come. Exporters remain highly optimistic in their expectations for coming months, according to the Treasury assessment. The GNP rose about 1–1/2 percent in the first quarter.
The Chancellor of the Exchequer repeated in a statement to the House of Commons that it will take two years of “hard slog” to restore the economy to a sound footing. He refused to make any forecast of the date when balance-of-payments surplus would be achieved.
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- Source: Washington National Records Center, RG 59, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments. Confidential. The source text comprises page 1 of the issue.↩
- Regarding the President’s decision to support this arrangement, see Document 200. Following the Basel meeting, Chancellor of the Exchequer Jenkins sent a message to Fowler on July 11. This message among other things expressed his “warm appreciation to you and your colleagues in Washington for the constructive and helpful attitude you have taken up about the new facility for sterling which has been discussed in Basel. The positive attitude which Governor Robertson gave to the proposals and the fact that he was able to do so with the full authority of the President, made, I am told, a considerable impression on the other Governors at the meeting.” (Johnson Library, National Security File, Fried Files, Chron, May 2–July 31, 1968, Box 2)↩