Impressing the Tailor

In 1946, war-battered and broke, Britain got a $3.7 billion loan from the U.S., another $1.2 billion from Canada. The Labor government promised to start repaying both loans on Dec. 31, 1951. Last week, as the deadline approached, Britain announced that it would pay the first installments on schedule. The U.S. share: $51.5 million on principal, $80 million in interest.

It was an impressive gesture. Hard-up Britain could have avoided repayment by invoking a clause in the loan agreement allowing it to postpone interest payments. Instead it decided to dip into its dwindling gold and dollar hoard to make good its promise. The Tory government had its own good reasons for honoring the debt punctually. Winston Churchill, due to visit Washington next month, wants to sweeten up U.S. opinion before asking for a bigger share of U.S. Mutual Security funds (perhaps $300 million). "Our principle," explained a Whitehall official, "is that you should always pay your tailor promptly for the first suit."

The same day, Churchill's government took a step meant to impress, not the tailor, but the world's traders. It relaxed some of the government's tight controls over foreign exchange transactions. A Treasury bulletin announced that henceforth private traders will be allowed to buy & sell foreign currencies in the open market instead of through the state-owned Bank of England. This does not mean that Britain is about to set the pound sterling free to find its own level in world markets, as the U.S. has long urged. The official price of a pound sterling will stay pegged at $2.80. But private banks will now be able to haggle for dollars, yen and kroner on their own terms, getting the best price they can--so long as the pounds bought for immediate use do not rise above $2.83 or fall below $2.77 in the transaction. The change will mean nothing to tourists and perhaps little to traders. But Chancellor R. A. ("Rab") Butler was in effect making a gesture in the direction of free markets, as if to affirm that the give & take of private trading and not the rigid mechanism of authority is the proper way to set the value of a nation's currency. Like the payment to the tailor, it might not be much more than a gesture, but it was a gesture in the right direction.

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