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How a near-bankrupt Britain was made to sell its best American asset in 1941: the mechanism, with Lend-Lease and the 1946 loan, by which financial primacy passed to Washington.
How a near-bankrupt Britain was made to sell its best American asset in 1941: the mechanism, with Lend-Lease and the 1946 loan, by which financial primacy passed to Washington.
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The United States revises its Neutrality Acts to let warring nations buy American arms, but only if they pay in cash and carry the goods away in their own ships. The rule keeps America formally neutral while opening its factories to buyers with hard currency. For Britain and France it means every rifle and aircraft must be paid for up front in dollars or gold.
By late 1940 Britain's gold and dollar reserves are close to running out. The Treasury warns that the country can no longer pay cash for the American arms it depends on. Churchill puts the problem directly to President Roosevelt, saying Britain will soon be unable to pay in full for shipping and supplies.
The American Viscose Corporation is the United States rayon business owned by the British textile firm Courtaulds. It is highly profitable and one of the most valuable British-owned companies in America. As Britain's dollars run low, this healthy overseas asset becomes a target for sale to raise cash.
Through 1940 and 1941 the British government requisitions and sells off British-owned direct investments in the United States to raise dollars. Company after company held by British owners is cashed in to pay for the war. The policy strips Britain of the overseas holdings that had underpinned its financial strength for decades.
To meet the cash-and-carry rule, Britain sends gold and dollar securities across the Atlantic to pay for American supplies. Some shipments travel by warship under guard. The purchases keep the war going but steadily drain the reserves the country needs to buy anything from abroad.
Alongside the sale of companies, Britain keeps shipping gold abroad to settle its bills. Reserves that took generations to build are handed over in a matter of months. The critic Andrew Boyle and others later called this stretch the selling of the family silver, the disposal of the nation's accumulated wealth to stay in the fight.
By early 1941 Britain has spent almost all of its usable overseas dollar assets. The reserves that had paid for two years of purchases are nearly gone. With no way left to pay cash, Britain can only keep buying American supplies if the United States changes the terms.
American Viscose is sold for about 54 million dollars to a syndicate led by Morgan Stanley and Dillon, Read and Company. Estimates of the company's real worth ran well over 100 million dollars. The bankers soon resold the business at a large profit, so much of the gap between the sale price and the true value went to the Wall Street buyers rather than to Britain.
Under pressure from both the American and British Treasuries, Courtaulds is required to sell American Viscose to raise dollars for the war. The sale is arranged in March 1941, weeks before Lend-Lease removes the cash requirement. Britain is made to give up one of its best foreign assets at the moment its bargaining position is weakest.
President Roosevelt signs the Lend-Lease Act, letting the United States supply arms and materials to Britain and its allies without immediate cash payment. It rescues Britain from the dollar crisis that had forced sales like American Viscose. It also ties Britain more closely to American supply and American terms for the rest of the war.
Courtaulds objects that it was forced to sell a sound business far too cheaply, and the British government later pays the firm partial compensation. Churchill protests the harshness of the terms to Washington. The Viscose sale becomes a lasting symbol of Britain being made to liquidate its finest asset while an American syndicate profited.
The Mutual Aid Agreement setting out the terms of Lend-Lease includes Article VII, a commitment to work toward removing discriminatory trade barriers. American negotiators read this as a move against Britain's system of imperial trade preference, which shielded empire markets from outside competition. The clause makes reducing the closed empire trading bloc part of the price of American aid.
Allied nations meet at Bretton Woods and agree a new financial system built around the US dollar, backed by gold, with the International Monetary Fund and World Bank to police it. Keynes argued for a more neutral international currency but the American plan won out. The postwar world would run on dollars, and the levers sat in Washington.
Days after Japan's surrender, President Truman abruptly cancels Lend-Lease. The aid that had sustained Britain through the war stops almost overnight. Britain, exhausted and heavily in debt, is suddenly left to pay its own way with reserves it no longer has.
With Lend-Lease gone, John Maynard Keynes leads the British team seeking American help and returns with a loan rather than a gift. The Anglo-American Loan provides about 3.75 billion dollars at two percent interest. In return Britain agrees to make sterling freely convertible into dollars within a year, a condition that would soon prove dangerous.
The sequence is documented fact: cash and carry, the forced sales, the drained reserves, Lend-Lease and its terms, Bretton Woods, and the 1945 loan together shifted the center of world finance from London to Washington. Some historians go further and argue the United States deliberately used the war to strip Britain of its assets and take its place as the leading power. Other historians counter that Britain was genuinely insolvent, and that the hard American terms reflected a suspicious Congress and ordinary self-interest rather than a single deliberate plan.
also in 1947: the postwar order is built
Honoring the loan terms, Britain makes the pound freely convertible into dollars in July 1947. Holders of sterling rush to swap it for dollars, and reserves drain away within weeks. Britain suspends convertibility in August, showing how tightly the loan conditions bound its recovery to American demands.
Britain makes the last repayment on the 1945 loan at the end of 2006, more than sixty years after the war ended. Only then is the wartime debt to the United States finally cleared. The long repayment marks how deeply the war and its settlement drained British finances.