753


FOREIGN ECONOMIC. AND COMMERCIAL POLICY


Fund has requested the advice of the Council as to the form and the
scope of the report which the IMF should make to GATT, as well
as the nature of the recommendations to be included in the report,
2. Background
  All of the countries involved in this investigation are in the sterling
area and Southern Rhbdesia is also in the common currency quota of
the U.K. in the IMF. India, Pakistan, Ceylon and Australia and New
Zealand do not independently hold substantial reserves of gold and
dollars. It is their practice, as members of the sterling area, to main-
tain their foreign exchange reserves in sterling. When they achieve
dollar surpluses as a result of their payments relationships with other
areas, they traditionally sell the surplus dollars to the United King-
dom. When they incur deficits which must be met in dollars, they
traditionally obtain those dollars from the United Kingdom.
   In the summer of 1949 when the action to restrict dollar imports
was taken, the gold and dollar reserves of the United Kingdom were
falling at a rate of approximately $1 billion per year. All of the coun-
tries mentioned above were, individually, incurring deficits in their
payments relations with the dollar area, although Ceylon had had a
dollar deficit for only a very short period of time, this deficit for
Ceylon might have been due to seasonal factors in the country's trade.
   Since the devaluation of sterling, however, the dollar position of the
 sterling area as a whole and the position of each of the individual
 countries mentioned above. with the exception of Pakistan, has im-
 proved materially. The reserves of the United Kingdom have risen
 from a low of $1,330 million on September 18, 1949 to $2,756 million
 on September 30, 1950. Although a part of the increase in the sterling
 area reserves had been attributable to ECA assistance and to drawings
 on the Canadian credit, a significant portion of the increase has been
 earned. Since January 1, 1950, the United Kingdom, including the
 dependent territories which are associated with it in the common cur-
 rency quota of the International Monetary Fund, has achieved a
 substantial dollar surplus quite apart from the receipt of external as-
 sistance. !India,, Ceylon, Australia and New Zealand also, have had a
 surplus in their balance of payments relations with the dollar area
 since January 1, 1950 although some of the surpluses have been
 fairly small. Only Pakistan has remained in deficit with the dollar
 area.
 3. Discussion
   At this titme a primary objective of the United States and the Free
 World is to strengthen military defenses. U.S. policies in the trade
 and exchange field-must necessarily be compatible with this objective.