Courtesy Reuters

The Dollar Gap and the Commonwealth

THE certainty that the Marshall Plan will not in itself overcome the "dollar problem" of the world as a whole by 1952 has produced a number of proposals for supplementary action. They include plans for funding Britain's excess sterling balances, suggestions for various domestic measures which deficit countries should take, and proposals seeking to induce the United States to export capital on the required scale. As Professor Williams has pointed out, internal measures by themselves will not be enough to correct the disequilibrium.[i] Moreover, there is little chance of large-scale private American investment taking place in Europe or other deficit countries, and any plan to export capital and technical skill to underdeveloped countries is at best a long-term undertaking. It is the purpose of this article to suggest that there is another and more realistic method of invoking American capital exports on a large scale. In this view, the key to the problem is to be found in investment in the Commonwealth countries, and involves a joint approach by these countries to the United States Government to obtain large-scale dollar loans which will be used to finance the capital imports necessary for their development as dollar earners.

Overseas sterling countries are responsible in a large degree for the magnitude of the dollar problem.[ii] Whereas before the war a United Kingdom deficit with the United States was covered by a surplus with other sterling countries which themselves had a surplus with the United States, in 1948 and the first part of 1949 overseas sterling countries were responsible for two-thirds of the total sterling area deficit on current account with the United States. The United Kingdom has made some progress in meeting its dollar deficit, while in the rest of the sterling area the deficit has increased since 1938. Before the war the gold production of the sterling area was $550,000,000, or more than the total dollar deficit of $525,000,000, so that by offsetting this production against the deficit a dollar balance was achieved. This is not the case

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