Decolonisation, unstable sovereignties and development: the Indian Sterling balance negotiations of 1947

Indo-British financial negotiations in 1947, a crucial year in the compressed timing of imperial retreat, impacted the shape of decolonisation and also the U.S.-led post-War global financial system. Of the vast debts Britain had accumulated during the Second World War, one-third of the total £3.5 billion was owed to British India. Inextricably linked to Indian hopes of industrialisation and development, a resolution to the outstanding ‘sterling balances’ was a priority for both leading Indian anti-colonial political parties, and was also a priority for the U.S. Treasury. The six-month Indo-British financial agreement was signed on August 14, 1947, while Whitehall was facing a global run on sterling. Negotiations were conducted separately from the transfer of power negotiations underway on the sub-continent, allowing Whitehall to leverage informational asymmetries while Indian sovereignties were in flux. Crucial sections of the interim agreement that clashed with Britain’s commitments under the U.S.-led Bretton Woods financial system were not communicated to Washington, even as Britain continued to draw on the Anglo-American loan that had been negotiated in December 1945.