§ So far I have for the most part been dealing with the United Kingdom overseas balance of payments, but I must now turn to what is the concern of the whole sterling area; that is, the balance of gold and dollar payments arising out of the transactions of the whole sterling area with the rest of the world. This matter is dealt with rather more fully in the Economic Survey this year, as there has been a tendency, I think, to misunderstand and confuse the relation between our own overseas balance of trade and the dollar balance of the sterling area as a whole.
§ The main purpose of our overseas economic policy is, of course, to eliminate the dollar deficit in the sterling area's accounts. I gave the House the figures for the dollar transactions a day or two ago. These showed a small surplus for the quarter which is the result of, I think, a most creditable performance by both this country and the other countries of the sterling area.
§ There is one item amongst those transactions to which I should like to refer. At the request of the Newfoundland Government we repaid the balance of nine million dollars outstanding from the interest-free loan of 12,300.000 dollars which they made to us during the war. I cannot let this occasion pass without expressing once again, I am sure on behalf of everyone in this Committee and in this country, our most grateful thanks for that very present help in our time of trouble.
§ The small dollar surplus which we earned in the first quarter of this year is the result of a number of temporary factors, including the after-effects of 44 devaluation, as well as of some more permanent factors. One of the very important influences is the strong buying by the United States of primary products from the sterling area. I must, therefore, warn the Committee and the country against relying too much upon the continuance of this favourable trend, but let me also bring to their notice that, if and when less favourable results appear, it will not mean that all our affairs have gone radically wrong. We must expect some variations, but if external circumstances continue' as they are today there is no reason why we should anticipate any dangerous change for the worse in our situation.
§ There is no doubt that a major element in our improved position is the reduction of the expenditure of dollars which we have brought about both upon visible and invisible imports. Since 1948 we have secured economies in dollar expenditure by the United Kingdom alone at the rate of 900 million dollars a year, reducing the annual rate of dollar expenditure to 2,000 million from 2,900 million in 1948. The Colonies and the sterling countries of the Commonwealth have also made very large economies and we hope that these will be continued. They have to some extent been made possible by the United Kingdom's ability to supply at fully competitive prices a greater quantity and larger range of their needs in imports. All this is a real and a continuing gain to our balance of payments. It means that the inescapable commitments upon our gold and dollar reserves for primary necessities have been and are still being steadily reduced.
§ There is another aspect of this matter no less important, and that is the saving that we have been able to make, since devaluation, in marginal gold payments. As the Committee knows there are a number of countries, such as Belgium and Switzerland, to whom we have had to make balancing gold or dollar payments from time to time over the past few years, mainly in respect of purchases from them by ourselves or other countries of the sterling area. Since devaluation, owing to our better competitive position, we have been able to replace these payments to a very large extent by exports to those countries of sterling area goods, thus saving the drain upon our gold reserves.
§ On the side of dollar-earning, the progress of United Kingdom exports has not 45 been quite so marked. We are gradually expanding our sales to the United States and Canada, and to the other American account countries, the importance of whose trade must not be overlooked. In this task I would like to commend very highly the contribution of the Dollar Exports Board, under the most effective leadership of Sir Cecil Weir. We have, I am glad to say, now reached the point where the increased volume of United Kingdom dollar sales is earning us dollars in excess of the rate of dollar-earning immediately before devaluation.
§ But, of course, the biggest element of dollar-earning by the sterling area is in respect of the income from the sales to the dollar area of such primary commodities as rubber, wool, jute, tin, cocoa and so on. Experience shows—as indeed one would expect—,that very large fluctuations indeed take place in these sales from month to month, apart altogether from their seasonal character. In recent months, these sales have been at a high level, but they might at any time fall off temporarily, if there were a weakening of internal demand in the dollar area. That is one reason why a decrease in our dollar spending is so essential to bettering our payments position because that is a regular and controllable saving, whereas the dollar-earning of the sterling area is much more uncertain and is not, of course, within our power to determine.
§ This brings me to a consideration of our reserves. At 1,984 million dollars they are a little bigger than a year ago, but they are still considerably below what they were at the beginning of the Marshall. Plan in March, 1948—which was itself a wholly inadequate level compared with our needs or our pre-war position when, making adjustments for the relative values of money, they were, in effect, four to five times as great as at present. Indeed, the changes in our reserves which took place last summer and led to such a drastic step as devaluation would have probably been very little noticed by world opinion if we had then had our pre-war volume of reserve. There was, in fact, as many will remember, between March, 1938, and March, 1939, a fall of £241 million sterling or over 1,000 million dollars in our gold reserve which we were able to handle quite comfortably and without any effect upon the external value of the £.
§ It is the smallness of our reserves much more than the unavoidable degree of 46 fluctuation in our earnings that is now our real trouble. That is why we must build up those reserves in every way we can so as to have more in hand to meet the quite normal and inevitable fluctuations in the dollar income of the sterling area that we shall encounter when Marshall Aid comes to the end in 1952.
§ One very encouraging feature in this situation is the almost universal recognition now given to the fact that this problem of the dollar gap is not one for the debtor countries only. Recent speeches by Mr. St. Laurent and Mr. Howe in Canada and by Mr. Acheson and Mr. Hoffman and others in the United States have emphasised strongly the need for open markets in the dollar countries if there is to be a real chance of bringing the overseas payments between the dollar area and the rest of the world into balance. I am sure, too, that we must all be greatly encouraged by the appointment by the President of the United States of Mr. Gordon Gray as a special adviser for the very purpose of examining and advising upon this situation.
§ We shall continue to concert measures with the Commonwealth, with our European neighbours in O.E.E.C., and with our Canadian and American friends to bring about a solution to this problem of the dollar gap. Continuous action by all the peoples concerned is certainly called for, since the solution of this economic problem is absolutely fundamental to the security of world democracy and to the survival of Western European civilisation.