April 27th 1942, 7 pages, from The Treasury, Whitehall, addressed to Roy Harrod at the Offices of the War Cabinet.
"Your Memorandum on Forthcoming U.S. Conversations. "...With a very large part... I am in agreement. The comments which seem worth recording are the following:
"1. I agree with you that we should not bring forward our own troubles...until we have some notion how sympathetic the Americans are to the schemes we shall have no means of measuring how serious our troubles are likely to be...
"2. To your Anglo-American Service...raise considerable diplomatic and practical difficulties...these relate particularly to the position (a) of Russia. (b) of the Dominions and (c) of the rest of Europe....
"3. You are quite right in arguing that the initial work of such an Anglo-American Service will be primarily concerned with relief and reconstruction. In view of what has happened in the Pacific and the Indian Ocean, this is more clearly so than it was even a short time ago...all over the world relief and reconstruction is likely to absorb all outside aid available for such general purposes for a considerable time to come....
"5...I disagree most strongly with your view that the control of capital movements may very possibly be unnecessary, especially if a Clearing Union comes into existence...(a)...we shall end the war with somewhere approaching Lm 2,000 of overseas liquid funds in London to which we cannot possibly afford to allow immediate freedom of movement...some system for the control of capital movements is absolutely indispensable the moment the war is over. (b) I am exceedingly averse to the idea that the Clearing Union should facilitate speculative movements by estimating their amount and then apparently behaving as though money which had gone abroad and been turned into a foreign currency still remained as part of the effective reserve of the country from which it fled.... (c) I see no reason to feel confidence that the more stable conditions, e.g. the partial remedy of the trade cycle and the prevention of sharp movements in exchange rates, will remove the more dangerous movements. These are likely to be caused by political issues.... (d)...Freedom of capital movements is an essential part of the old laissez-faire system and assumes that it is right and desirable to have an equalisation of interest rates in all parts of the world.... In my view the whole management of the domestic economy depends upon being free to have the appropriate rate of interest without reference to the rates prevailing elsewhere in the world. Capital control is a corollary to this.... (e) In my opinion you are grossly over-estimating the amount of our speculative profits through the pre-war freedom to remit money in any direction.... (f)...I have no objection in principle to some formula...on the lines of your Annex II.... I have not been able to understand just how your new proposal would work in practice...
"...a country has a debit index of 1/4 and that the world debit index is 1/2. If the world debit index increases to 5/8, does this entitle the individual country's debit index to increase to 3/8 or to 5/16? I cannot work out practical examples without knowing the answer to this question...."
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