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Anglo-American loan officially Anglo-American Loan Agreement was a loan made to the United Kingdom by the United States on 15 July 1946, enabling its economy after the Second World War to keep afloat.^[1] The loan was negotiated by British economist John Maynard Keynes and American diplomat William L. Clayton. Problems arose on the American side, with many in Congress reluctant, and with sharp differences between the treasury and state departments. The loan was for US$3.75 billion (equivalent to $58.59 billion in 2023) at a low 2% interest rate; Canada loaned an additional US$1.9 billion (equivalent to $29.69 billion in 2023). The British economy in 1947 was hurt by a provision that called for convertibility into dollars of the wartime sterling balances the British had borrowed from India and others, but by 1948, the Marshall Plan included financial support that was not expected to be repaid. The entire loan was paid off in 2006, after it was extended six years.

Background

At the start of the war, Britain had spent the money that it did have in normal payments for materiel under the "US cash-and-carry" scheme. Basing rights were also traded for equipment, e.g., the Destroyers for Bases Agreement, but by 1941 Britain was no longer able to finance cash payments and Lend-Lease was introduced. The Lend Lease Act provided aid for free on the basis that such help was essential for the defense of the United States. Congress passed the final extension of the act on April 16th, 1945, extending the aid for another year while adding an amendment stating that no aid could be provided for postwar relief or reconstruction.

Large quantities of goods were in Britain or in transit when the Lend Lease Act was terminated on 21 August 1945. The British economy had been heavily geared towards war production (constituting 55% of GDP in 1944) and had drastically reduced its exports.^[2] The UK therefore relied on Lend-Lease imports to obtain essential consumer commodities such as food while it could no longer afford to pay for these items using export profits. The end of Lend-Lease thus came as a great economic shock. Britain needed to retain some of this equipment in the immediate post war period. As a result, the Anglo-American loan came about. Lend-lease items retained were sold to Britain at the knockdown price of about 10 cents on the dollar, giving an initial value of £1.075 billion.^[3]

Agreement

Terms

John Maynard Keynes, then in poor health and shortly before his death, was sent by the United Kingdom to the United States and Canada to obtain more funds.^[4] British politicians expected that in view of the United Kingdom's contribution to the war effort, especially for the lives lost before the United States entered the fight in 1941, America would offer favorable terms. Britain was offered a loan at 2% interest to be paid over 50 years starting in 1950 by both Canada and the United States.

Historian Alan Sked has commented that, "the U.S. didn't seem to realize that Britain was bankrupt", and that the loan was "denounced in the House of Lords, but in the end the country had no choice."^[5] America offered US$3.75 billion (equivalent to $58.59 billion in 2023) and Canada contributed another US$1.19 bn (worth US$20 billion in 2024), both at the rate of 2% annual interest.^[6] The total amount repaid, including interest, was $7.5bn (£3.8bn) to the US and US$2bn (£1bn) to Canada.^[7]^[8]

The loan was made subject to conditions, the most damaging of which was the convertibility of sterling.^[9] Though not the intention, the effect of convertibility was to worsen British post-war economic problems. International sterling balances became convertible one year after the loan was ratified, on 15 July 1947. Within a month, nations with sterling balances (e.g. pounds which they had earned from buying British exports, and which they were now permitted to sell to Britain in exchange for dollars) had drawn almost a billion dollars from British dollar reserves, forcing the British government to suspend convertibility and to begin immediate drastic cuts in domestic and overseas expenditure. The rapid loss of dollar reserves also highlighted the weakness of sterling, which was devalued in 1949 from $4.02 to $2.80.^[10]

In later years, the term of 2% interest was rather less than the prevailing market interest rates, resulting in it being described as a "very advantageous loan" by members of the British government, as elaborated below.

Loan spending

Much of the loan had been earmarked for foreign military spending to maintain the United Kingdom's empire and payments to British allies prior to its passage, which had been concealed in negotiations through to the summer of 1946.^[11] Keynes had noted that a failure to pass the loan agreement would cause Britain to abandon its military outposts in the Middle Eastern, Asian and Mediterranean regions, as the alternative of reducing British standards of living was politically unfeasible.^[12]

Repayment

The last payment was made on 29 December 2006 for the sum of about $83m USD (£45.5m) to the United States, and about $23.6m USD (£12m) to Canada; the 29th was chosen as it was the last working day of the year.^[13]^[3]^[14] The final payment was actually six years late, the British Government having suspended payments due in the years 1956, 1957, 1964, 1965, 1968 and 1976 because the exchange rates were seen as impractical.^[15] After this final payment Britain's Economic Secretary to the Treasury, Ed Balls, formally thanked the US for its wartime support.^[15]

References

^ Gannon, Philip (2 January 2014). "The special relationship and the 1945 Anglo-American Loan". Journal of Transatlantic Studies. 12 (1): 1–17. doi:10.1080/14794012.2014.871426. ISSN 1479-4012. S2CID 153493379.
^ Richard J. Evans, The Third Reich at War: How the Nazis led Germany from Conquest to Disaster (2008) p. 333.ISBN 9781594202063
^ ^a ^b Rohrer 2006
^ Robert Skidelsky, John Maynard Keynes. Vol. 3: Fighting for Freedom, 1937–1946 (2001) pp. 403–458
^ International Herald Tribune 2006
^ Philip A. Grant Jr., "President Harry S. Truman and the British Loan Act of 1946," Presidential Studies Quarterly, (Summer 1995) 25#3 pp. 489–496
^ McIntyre, W. David (1998). British Decolonisation, 1946–1997. Macmillan Press Ltd. p. 83. ISBN 0333693310.
^ Kindleberger 2006, p. 415
^ Rosenson 1947
^ Documentary evidence can be found at www.nationalarchives.gov.uk/cabinetpapers, see CAB128/10. For a good account of the convertibility crisis, see Alec Cairncross, Years of Recovery: British Economic Policy, 1945–1951, (London, 1985), pp. 121–164.
^ Randall Bennett Woods (1990). A Changing of the Guard: Anglo-American Relations, 1941–1946. UNC Press Books. p. 374. ISBN 978-0807818770.
^ Woods, p. 375
^ "What's a little debt between friends?". BBC News. 10 May 2006. Retrieved 20 November 2008.
^ Epstein 2007
^ ^a ^b Thornton 2006.

Sources

Block, Fred (1977). The Origins of International Economic Disorder. Berkeley, Calif.: University of California Press. pp. 32–69. ISBN 0520037294.
Callaway, C. Darden. The Anglo-American Loan of 1946: U.S. Economic Opportunism and the Start of the Cold War (2014)

Clarke, Sir Richard (1982). Cairncross, Sir Alec (ed.). Anglo-American economic collaboration in war and peace, 1942–1949 (1982 ed.). Clarendon Press. ISBN 978-0198284390 – via archive.org.
Epstein, Rafael (3 January 2007), "UK pays off WWII debt to US", AM (radio broadcast transcript), Australian Broadcasting Corporation, retrieved 10 October 2021
Gardner, Richard N. Sterling-Dollar Diplomacy in Current Perspective: The Origins and the Prospects of Our International Economic Order (1980)
Grant Jr., Philip A. "President Harry S. Truman and the British Loan Act of 1946," Presidential Studies Quarterly, (1995) 25#3 pp 489–496 online
Kindleberger, Charles P. (2006). A Financial History of Western Europe (2006 ed.). Taylor & Francis. ISBN 978-0415378673.
Rosenson, Alex (March 1947). "The Terms of the Anglo-American Financial Agreement". The American Economic Review. 37 (1): 178–187. JSTOR 1802868.
Skidelsky, Robert. John Maynard Keynes. Vol. 3: Fighting for Freedom, 1937–1946 (2001) pp. 403–58
Thornton, Philip (29 December 2006). "Britain pays off final instalment of US loan – after 61 years". The Independent. Archived from the original on 12 July 2010. Retrieved 10 October 2021.
Wevill, Richard. Britain and America after World War II: Bilateral Relations and the Beginnings of the Cold War (I.B. Tauris, 2012)
The Collected Writings of John Maynard Keynes, Volumes 24 (London: Macmillan Press, 1979)