21 Nimmo to Department of the Treasury
Cablegram 2131 LONDON, 28 June 1948, 8.15 p.m.
It is becoming clear that the problem of long term dollar viability [for] , the Sterling Area as a whole is to a large extent associated in the minds of the United Kingdom Officials with the increasing diversion of the rest of the Sterling Area exports from United Kingdom and other relatively soft currency areas to dollar and other hard currency areas (e.g. Argentine).
When this long term problem is raised with the United Kingdom Officials almost invariably reference is made to the possible scope of such diversions. United Kingdom are questioning to what extent the goods they previously regarded as essentials are really essential.
This thinking on diversion is probably part of a search for a wider field of exports to North America and suggests that the United Kingdom has achieved maximum diversion of her own exports.
She is also faced with the problem of her own overall balance and may be examining the feasibility of cutting non dollar imports which are not prime essentials and which might be sold for dollars.
These assumptions have not been confirmed but preliminary thinking for the forthcoming London talks should be aware of such suggestions. They also emphasise the difficulty of obtaining increased allocations for Australia of United Kingdom exportable surpluses of world scarce commodities.
Sterling Area Development Committee is paying increasing attention to the feasibility of coordinating capital development within the Sterling Area.
Economist of [26th June contains] article entitled 'Dollar Shortage for Ever'. The argument contrasts two views. There is first the current American view that the present dollar scarcity is a short term phenomenon caused by massive temporary dislocation brought about by Hitler's war, that this will have vanished by 1952 and that the intervening gap will be covered by Marshall Aid.
On the other hand there is implied view of Economist that the causes of chronic dollar shortage were just below the surface in the inter war period and were masked by large American loans to Europe and South America, that the last war pushed the permanent shift in relationships a good bit further, that the gold reserves have gone and investment of income has almost gone and that South East Asia is no longer a dollar earner that it was because synthetic rubber plants and tin smelters have been constructed in the United States. 'If dollar shortage is likely to be permanent the Marshall Plan should be regarded as a transition to some different pattern of international economic relationships.'