13 Financial Relations between the Netherlands and Belgium 1943 to 1993

James Boughton
Published Date:
December 2004
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1 Introduction

Of the six countries that created the European Economic Community in 1957, the three smaller ones, Belgium, Luxembourg and the Netherlands, had for more than a decade made pioneering efforts at ever-widening financial and economic collaboration and integration. The three countries—the first two of which had been joined in the Belgo-Luxembourg Economic Union since 1921—had concluded a monetary agreement dealing with exchange rates and mutual credits in 1943, had moved toward a customs union in the course of the 1940s and liberated capital movements substantially in 1954. They also entered upon an economic union in 1960, 33 years before the birth of the economic union of the Twelve. Although the passage of time and the creation of new institutions—the IMF, the European Payments Union (EPU) and above all the EC—have deprived the earlier endeavors at multilateral cooperation of much of their original significance, these pioneering efforts and their after-effects deserve more attention than they have so far received.1

A succession of political conflicts and, in the 1930s, the resurgence of protectionist tendencies, had prevented the Netherlands and Belgium from establishing close economic or financial relations in the inter-war period, in spite of many obvious parallel interests. But the proximity of the two governments in exile in London facilitated a determined attempt from both sides to strive for much closer cooperation in the post-war period. Personalities also helped: the two finance ministers, Van den Broek and Gutt, had become acquainted as the heads of the Dutch and Belgian colonial tin-mining companies (Billiton and Katanga) and had turned from competitors to collaborators and friends in the tin cartel of the 1930s.2 The most important results of this cooperation were the pathbreaking monetary and trade agreements negotiated in London between the two countries. These agreements, and the ensuing developments over the next fifty years, will be the subject of this essay. But first it is worth recalling another—virtually unknown—exercise in planned cooperation that did not materialize and that might have had some additional cooperative benefits had it come off.

2 Plans for Coordinated Representation in the IMF and World Bank

The two governments at all time considered their own steps towards closer bilateral financial relations as fully compatible with the ongoing discussions on a world-wide monetary structure as envisaged by the Keynes and White plans for an International Monetary Fund.3 In these latter discussions they went far to coordinate their positions, looking ahead to acting jointly in the new organization once it became established after the war. This approach inspired them to give their delegations to the Bretton Woods conference one principal common guideline: to obtain for the two countries quotas in the Fund and the Bank large enough to ensure that, acting together, they would always be able to elect one Executive Director in each organization, which they planned to alternate between them. This objective—which involved the delegations in difficult negotiations in Bretton Woods, not only on quotas but also on the provisions for expanding the number of elected directors as the membership of the Fund increased—was achieved but, it appeared, with little room to spare. With the quotas set at Bretton Woods, it was expected that the five directors to be elected by 21 of the smaller members would have to compete for 25,500 votes, requiring a minimum of 5,100 votes to make sure of a seat.4 The Dutch and Belgian quotas gave a total of 5,500 votes (5,850 including Luxembourg).5.

At the inaugural meeting of Fund and Bank in Savannah (March 1946), however, the calculations made at Bretton Woods turned out to be no longer valid. First, the Soviet Union had not joined. This removed the votes of India (which replaced the USSR as one of the big five with an appointed director) from the competition. As Australia and New Zealand had not yet become members, their votes dropped out too. Thus the required minimum fell to 3,440. And, it appeared to general surprise, since some of the five directors would inevitably receive more than the minimum votes, it would be necessary to declare one or two other directors elected with fewer than the minimum.6 After a series of votes, the Netherlands (with the additional votes of Norway) and Belgium (still below the minimum with those of Luxembourg and Iceland) each got a seat on the Fund Board and on the World Bank Board.

Once established in 1946, this situation has continued to this day. To safeguard their separate seats, the two countries succeeded in gradually expanding their constituencies, sometimes in rather fierce competition. By the time of the 1992 biannual election, both constituencies had grown to nine countries, each with a voting power in excess of that of the Netherlands, Belgium and Luxembourg combined. Representing mixed constituencies that included industrial, developing and lately also ‘transforming’ economies no doubt added to the interest, and also to the importance, of the positions of the Benelux directors. But against this there has to be set the loss of the original objective of a structure ensuring close cooperation in Washington, and the coordination between Brussels and The Hague-Amsterdam that this would have required.

3 A Monetary Agreement and a Customs Union

The Netherlands-Belgian-Luxembourg monetary agreement of 1943 was the first of the network of bilateral European agreements designed to facilitate post-war trade by ‘solving’ up to an agreed point the problem of financing trade imbalances, or ‘trade swings’ as they were optimistically called at the time. All these agreements contained in addition understandings on the mutual exchange rate and provisions requiring consultation—in the Benelux case even agreement—before a change in that rate could be made. The initial rate between the guilder and the Belgian franc was set equal to their prewar parity on the ground that the impact of the war on the two countries had been essentially comparable.7 The drawback of the bilateral character of these agreements was recognized at the time, but it was hoped that this could be overcome by transferability within wider regional groupings. This finally materialized, for Europe and the related overseas territories in the European Payments Union, but not before 1950. As a further step to promote worldwide trade, a number of regional agreements might be connected through an international institution, in which the United States, as a large source of dollars, would take the position of the sun in the solar system. Dr J.W. Beyen, at the time a director at Unilever and financial advisor to the Netherlands government, one of the principal planners and negotiators during this period, believed that a gradual approach of this kind toward a world payments system was preferable to the immediate one-world approach of both the Keynes and the White plans.8

According to Beyen, who was one of its godfathers, the Benelux monetary agreement was ‘baptized’ in March 1943.9 This, however, must have been a case of prenatal baptism: disagreements among the different ministries involved on the Dutch side—about which more will be said in the next section—held up the birth of the agreement until 21 October 1943. Even then, the Belgians seemed to have been more content with the baby than the Dutch. Minister Gutt gave an extensive account of the agreement on the radio for Belgian listeners. On the part of the Netherlands, on the other hand, the text of the agreement was not published in the ‘Staatsblad’ until nearly a year later.10 Characteristic of the farsightedness of the Belgian-Dutch financial authorities was that they were the only ones in the 1940s who were prepared to proceed beyond a monetary agreement to the logical next step: the conclusion of a customs union. Started even before the monetary accord was fully settled, the far more difficult technical discussions on a common external tariff and a customs union took an additional year, but an agreement was signed in London on 5 September 1944. Ratification by the three parliaments did not take place until the second half of 1947 and the agreement did not become fully effective until April 1949.11 Even then, numerous restrictions on the freedom of trade between the two countries remained, inspired first by Dutch concerns about payments deficits and then by Belgian employment concerns.12

4 Setting the Invasion Exchange Rates

The monetary and trade agreements were major economic and political achievements—but they could have no practical impact on the conduct and financing of trade until both countries were liberated. But in another context the monetary agreement became of immediate importance, and that was the process, which had already started before, of agreeing ‘invasion exchange rates’ with the British and American military authorities. To preserve the status of the national currencies of Belgium and the Netherlands, which had continued to function as the countries’ legal tender under the German occupation, it was essential that the liberating armies and individual army personnel would use these currencies, rather than dollars, pounds or scrip for their purchases in liberated territories. That required the fixation of an exchange rate, even before the countries would be ready to engage again in international trade. The linkage of the guilder and the Belgian franc in Article 1 of the Benelux Agreement made it necessary for the two countries to come to compatible decisions on the respective exchange rates of their two currencies against the pound and the dollar.

4.1 The Belgian Position

It proved far more difficult for the Dutch than for the Belgian government to come to a firm opinion on what the appropriate exchange rate should be. Belgium had, so to say, a natural choice, which at the same time appeared to provide an economically justifiable rate. An integral part of the Belgian Kingdom, the Congo, was free and economically prosperous. The Congo had had a currency of its own since 1908, the Congo franc, issued by the Banque du Congo Belge, which in peace time had always been at par with the metropolitan franc. After the complete occupation of Belgium and the evacuation of the Belgian government to Vichy (it moved to London a few months later), a decision was taken to devalue the Congo franc to parity with the French franc, a devaluation by almost one-third, from 3.37 to 2.28 dollar cents per Congo franc and to Congo franc 176.625 to the pound sterling. The economic reason for this decision is not clear; writing in 1943, the General Manager of the Banque du Congo Beige judged it as ‘without any economic justification’ and presumed it to have been taken for political reasons.13 In any event, the Congo entered the sterling area at this rate, contributing its foreign exchange receipts (beyond its own needs and those of the Belgian government in exile) to the central reserves of the area. The Congo franc was a strong currency: in lending their foreign exchange surpluses to the Belgian government, the Congolese authorities opted to have their claims expressed in Congo francs rather than in sterling.14

By 1943, the new rate for the Congo franc was a ‘fait accompli’ and from all signs the Congo prospered, exporting large quantities of copper, oil and oil-seeds, cotton, fibers, rubber, gums, coffee and industrial diamonds to Britain and the United States.15 Not mentioned in war-time sources, the Congo was also the major source of uranium for the allied war effort. The question of a possible return of the Congo franc to the old rate simply did not arise. Rather, the obvious choice for the Belgian authorities was to resume parity between the metropole and the colony on the basis of the prevailing rate for the Congo franc. The devaluation of the metropolitan franc implicit in this choice was, after extensive studies 16, considered to be ‘technically indispensable’ by a government which could hardly be considered devaluation-prone. The Minister of Finance, Camille Gutt, had opposed devaluation of the Belgian franc when he held the same position in 1935 and, though a successor government had taken that measure (and thereby started the demise of the gold bloc), he still considered it to have been unnecessary 14 years later. He had also prided himself on having successfully opposed pressure for devaluation after he returned to the government in February 1939.17

In so far as there had been opposition in Belgian circles in London to the rate chosen, it came from those who wanted to devalue more; Paul van Zeeland, who had introduced the 1935 devaluation, again favoured a lower value for the franc than the government: 250 BF/$ rather than 176.18 After its return, in its justification to parliament, the government defended itself implicitly against a possible charge of not having devalued enough by stating that the new rate had been selected so as to ensure that the post-liberation wage rate would have at least as much purchasing power as the pre-war rate. It further explained that while it had not chosen a rate based on the price level on the black market in Belgium, it could not either take its cue entirely from the level of ‘controlled prices’, which were often kept uneco-nomically low. 19 Whatever the government’s precise line of reasoning, it is clear that by early 1943 (or perhaps even earlier) it had decided to set the rate for the Belgian franc at parity with the prevailing rate for the Congo franc.

4.2 The Struggle for a Dutch Position

At the pre-war parity relationship between the guilder and the Belgian franc, the Belgian choice would imply a rate for the guilder against sterling of 10.69. But the Netherlands also had a colonial connection—and one that conflicted with that of Belgium. In February 1943, the Minister of Finance expressed the view that the exchange of foreign currencies for guilders by the liberating armies should take place ‘at the same exchange rates as those which applied under the monetary agreement between the Netherlands Indies and the British empire, i.e. 7.60 (against the sterling) and 1.885 (against the dollar).’20

If this was indeed the Minister’s view in February, it did not take him long to change his mind. He may well have been influenced by the contacts (already mentioned) with his Belgian colleague. From within the Dutch community in London he had received advice in the same direction: in a long letter with tables and graphs, August Kessler, a director of the Royal Dutch Shell, had argued that reintroduction of the pre-war rate of Fl. 7.60 per pound (which was then still in effect in the Netherlands Antilles) would be a ‘serious mistake’ that would create great difficulties to the reconstruction of the Netherlands economy. Kessler based his argument primarily on the much greater increase in the money supply since April 1940 in the Netherlands than in England—by a factor of 2.5 versus about 1.5, which he expected to manifest itself in larger price increases once the war-time controls were relaxed.21 In any event, Van den Broek answered Kessler’s letter at once, stating that as far as he could see at the time, he shared Kessler’s view that the Fl. 7.60 rate should not and could not be maintained after the war.22 A few months later, while on a visit to the United States, Van den Broek discussed the exchange rate question at the State Department and indicated that the Netherlands government wanted to set the guilder/sterling rate at 10.50, which would correspond approximately to the old gold parity of FL. 2.50 for the dollar.23

In fact, however, the exchange rate issue had by no means been settled within the bosom of the Netherlands government. One indication of this was the rather curious fact that the draft of the monetary accord with Belgium that the Minister of Finance submitted for approval to the cabinet on 14 April 1943 contained a blank for the most essential variable, the official rate between the two currencies, set in Article 1 (there were corresponding blanks for the Dutch commitments in guilders corresponding to the explicit Belgian swing credits of BF 500 million and BF 1 billion in Articles 5 and 6). The letter of transmission suggested that that rate could not be set pending a monetary agreement with the British that both the Dutch and the Belgians were hoping to achieve.24 The Belgian view on this issue was that the guilder/franc rate should be set first, in the light of the situations in the two countries, after which the two parties should coordinate their positions on the rates for their respective currencies against third currencies.25 This view in the end prevailed: the agreement was signed half a year before the final decisions on the invasion rates were taken and even longer before the countries signed bilateral agreements with the United Kingdom in March 1945.

A number of the critical views within the Dutch administration deserve to be recorded. Beyen, the person in London primarily in charge of post-war financial planning, had immediately taken issue with the gist of Kessler’s advice to the Minister. He pointed out that the much smaller increase in the money supply in the United Kingdom than in the occupied Netherlands did not so much reflect a different degree of reliance on deficit financing as the fact that in the former country a large proportion of the deficit had been consolidated in war loans. The Dutch government had plans (about which his letter gave no details) to absorb much of this excess purchasing power after liberation and if these plans proved successful, the inflationary situation in the Netherlands would not be all that different from that in the United Kingdom. Thus while one could not predict the correct postwar exchange rate he suggested that a rate for sterling around Fl. 7.60 might well prove reasonable.26 The response from others within the Netherlands establishment may have been delayed by the secrecy with which the Ministry of Finance treated the subject. Failing to recognize—or was it to admit?—the economic significance of the ‘invasion rates’, the Ministry consistently took the line that these were merely unofficial accounting rates: ‘the public in the Netherlands has no interest in this rate and does not even have to know it’. And it continued: ‘The decision to pay with Netherlands money in the Netherlands has the great advantage that it is not necessary at once to fix an official exchange rate for the guilder, leaving the government entirely free to fix this rate later in consideration of all relevant factors’.27 The Ministry continued to adhere to this narrow view even after the partial liberation of the country, when Van den Broek advised the Ministry of Foreign Affairs not to worry about any exchange rate for sterling: ‘The only official rate that exists for the guilder is that against the Belgian franc … All that exists with respect to the pound sterling is that England has accepted for the settlement of the so-called invasion money, the rate declared by us to the English Treasury of 10.691 F1./£. A monetary agreement with the United Kingdom that fixes this exchange rate is under consideration but has not yet come into effect’.28

As others in the government became aware of the exchange rate negotiations with the Allies and the Belgians—in which Kerstens, the Minister of Commerce, had initially not participated—objections began to be voiced against cheapening of the guilder and the attendant inflationary risks. Unfavorable press reports on financial developments in North Africa, Italy and France were cited in this connection. Kerstens expressed concern about foreign military authorities setting an exchange rate that might be prejudicial to the future economic and financial structure of the Netherlands.29 Steenberghe, a previous Minister of Finance, warned from Washington, where he headed the government’s Economic, Financial and Shipping Mission, against the impact on the domestic price level of the sterling rate mentioned by Van den Broek to the Americans.30 Beyen also appears to have maintained his reservations with respect to that rate.31

4.3 Convincing the Allies

Whatever the sentiments within the government, it was clear that setting a rate for sterling and the dollar was not a unilateral Dutch, or a bilateral Dutch-Belgian, matter but also required Allied concurrence. The English did not prove difficult on this question, but when Gutt brought up the matter with the Americans in November 1943 he ran into a stone wall with Harry White. 32 Gutt’s collaborator Hubert Ansiaux (later Governor of the Belgian National Bank) was asked to continue the negotiations with one of White’s collaborators, (William H.) Taylor, whom Ansiaux describes as being ‘d’une brutalité invraisemblable’ (This was the style practiced by many of White’s assistants, not only vis-à-vis foreigners but also in dealings with officials from other us departments.) Taylor took the line that 176 francs per pound was out of the question but that he was willing to negotiate about a rate between 200 and 250. In the end, however, Ansiaux was able to satisfy White himself about the proposed rate by his answer to one question about the Belgian price level: ‘What is the price paid in a cloak room?’ ‘One franc’, Ansiaux pulled out of the air. White thought that over and concluded: ‘Your rate is right’.33 Shortly after that, there was at least one further, this time a multilateral, meeting at the Treasury, and the Dutch submitted a lengthy statistical and analytic note in support of the rate they had selected.34 That note (of which I happen to have been the author) tried to demonstrate that a more depreciated rate would lead to unduly low real wages or needless inflation, and a more appreciated rate to undesirable deflation. But by that time the matter had presumably been settled to White’s satisfaction by Ansiaux’s exercise in purchasing power parity.

Even after the Americans had relented on the rate it took a few more months before the Allies were officially notified of the exchange rates chosen. Here again the Belgians took the lead. On 13 April 1944, Gutt wrote Van den Broek ‘to confirm that at one of our last cabinet meetings the Belgian government decided to fix the exchange parity of the Belgian franc, from the day of the entry of the Allied troops into Belgium, at 1 £ = 176.625 francs or 1 $ = 43.827 francs (which) corresponds to 10.691 guilders to the £’, and that he had advised the uk and us Treasuries accordingly.35 Van den Broek then took the corresponding actions, invoking the same escape clause that Gutt had communicated in his letter.36 In contrast to the pronouncements of the Ministry of Finance referred to earlier, minimizing the economic importance of the invasion rates, Van den Broek’s letters followed the Belgian precedent and spoke of ‘fixing the exchange parity of the Netherlands guilder’.

5 Exchange Rates During the Remainder of the 1940s

The development of the Dutch and Belgian economies in the early post-war years does not—to the extent that such a judgment can be made so long after the event—point to any clearly unsatisfactory results arising from setting the exchange rate for the Belgian franc on the basis of the rate for the Congo franc, or from setting the exchange rate for the Netherlands guilder on the basis of the Congo franc once removed. It deserves to be recorded, however, that when in mid-1945 Pieter Lieftinck took over as Minister of Finance in the Netherlands he was less than happy with the exchange rate decision that the government in London had taken, in part, he suggested, under pressure from the Allies. He judged that rate as ‘too low rather than too high’ but ‘had not felt free, after considering all aspects, to try to change it’.37 (His response to the devaluation of sterling three years later might suggest that his initial reservation on the rate had disappeared.) In any event, the drastic monetary purges introduced by the two finance ministers, Gutt in Belgium and Lieftinck in the Netherlands, probably more than the precise exchange rates selected, were critical to the broadly satisfactory outcomes achieved in both countries.

By late 1946, therefore, the ‘invasion rates’ of 1944 still seemed appropriate to be communicated to the IMF as ‘initial par values’. The Fund accepted the values communicated—as it did for all countries, having persuaded a few of them not to submit par values. But in the light of the events of 1949 it is interesting to note that the Fund, which at that time was paying more attention to price and wage movements than to balance-of-payments developments that might prove to be transitory, seemed more comfortable with the par value of the guilder, which was supported by strict wage and price controls, than with that of the Belgian franc, which reflected the more market-oriented approach of the Belgian government.38 The submission of these par values was probably the last action in the area of exchange rates by the two countries fully in the spirit of their 1943 agreement. Curiously, the Netherlands did not ratify the agreement until November 1946 and Belgium never ratified it at all, so that it remained in effect on a provisional basis only under Article 17.39

Within two years of accepting the initial par values, the Fund began to reassess their lasting validity, in particular as concerns the European countries.40 Among these countries, the balances of payments of the Netherlands and Belgium had developed quite diverging tendencies. Belgium had established itself as a persistent surplus country, the Netherlands as a persistent deficit country, and indeed much of the imbalances were between them: in 1949, the Netherlands’ deficit with Belgium was one-third as large as that with the whole of the Western Hemisphere.41 The differences in their economic and financial positions coloured the Dutch and Belgian attitudes in the process of wide-spread adjustment of par values that followed the United Kingdom’s devaluation of sterling in September 1949. Essentially, on that occasion, the two countries went their separate ways, each focusing primarily on a new par value to the dollar and an appropriate competitive position against other European countries. There were frequent consultations over the crucial weekend, it being understood on both sides that devaluation by the same percentage would not be appropriate. But each country had considerable difficulties to come to its own decision. To the Fund, the proposal of the Netherlands to devalue by the same percentage as sterling, and much more than Belgium, seemed entirely natural. Months before, Bernstein (the Fund’s Director of Research) had been told in the Netherlands that that country ‘would devalue the guilder at the same time and to the same extent as sterling’.42 But, probably because sterling was devalued more sharply than anyone had anticipated 43, this was no longer the agreed Dutch view on 18 September 1949. From Washington, where he still was after the Fund’s annual meeting, Holtrop (supported by Beyen, the Netherlands Executive Director) urged Lieftinck and the cabinet to limit devaluation to some 24 per cent. They argued that this would mitigate the inflationary impact, reduce the pressure for wage compensation and keep competitive pressure on the export industries.44 But Lieftinck was able to persuade the cabinet to go as far as the British, primarily on account of agricultural and shipping interests. 45 One should not overlook the fact, of course, that the economic arguments put forth reflect to some extent different personal attitudes towards the exchange rate. Holtrop and Beyen, who would nowadays be considered as belonging to the ‘hard currency’ school, attached considerable weight to the exchange rate as a disciplinary factor, while others (among them Lieftinck) would put primary emphasis on the competitive benefits of a relatively low rate. This also became evident on a later occasion. When in March 1961 first Germany and immediately afterwards the Netherlands proposed a 5 per cent revaluation to the Fund, Lieftinck, then the Netherlands Executive Director in the Fund, told me, in a telephone conversation ‘in code’: T did not like the mother and I like the daughter even less’.

Belgium found it even more difficult than the Netherlands to formulate a response to the British challenge. It first proposed to abandon the defense of its par value and allow the franc to fluctuate; it even managed to get the Fund’s hesitant blessing for this step. But two days later Belgium had become sufficiently concerned about the dangers of a fluctuating rate to declare a new par value 12.4 per cent below the old one.46

6 Since 1949: Separate Policies on Exchange Rates

Although, as mentioned, the two countries consulted about their evolving changing exchange rate plans in the hectic days of September 1949, that experience was also the end of a common, or commonly agreed, exchange rate policy. After having overcome its post-war balance-of-payments weakness by the early 1950s, the Netherlands generally tended to follow the ‘hard-currency’ policy of Germany. Except for a recent period in the late 1980s and early 1990s, Belgium’s policies were not as closely associated with those of Germany and were, in almost all instances, less ‘hard’. In 1961, Belgium did not follow the German and Dutch revaluations. In May 1971, when Germany and the Netherlands allowed their currencies to float, Belgium maintained the official rate for current transactions while relying on the free market for capital transactions to absorb the impact of the inflow of dollars.47 At the Smithsonian, for once, the guilder and the Belgian franc were appreciated by the same percentage against the us dollar (11.57 per cent), 2 percentage points less than the Deutsche mark.48 But within two years, in September 1973, the guilder was revalued by 5 per cent in the snake, following a 5.5 per cent revaluation of the Deutsche mark in June.49 The Netherlands and Belgium thus entered the European Monetary System in March 1979 with a BF/F1. rate of 14.5. This rate survived the first realignment in the EMS, in September 1979, but only after long negotiations that left the Dutch outmanoeuvered and thoroughly unhappy with the outcome: a 2 per cent depreciation against the Deutsche mark in the company of the Belgian franc, the French franc, the Italian lira and the Irish punt.50 Over the next decade, the Belgian franc lost value against the guilder in six realignments (October 1981, February 1982, June 1982, March 1983, April 1986 and January 1987), ending with a central rate of about 18.3 BF/F1.51 And in August 1993 the guilder was the only currency to maintain the narrow margin against the Deutsche mark while Belgium, together with all other countries then still in the EMS, chose the new 15 per cent margin.

In part, the practical demise of the 1943 provisions to agree on parity changes reflected the fact that other approval mechanisms had taken the place of these provisions. Membership in the Fund put the parities of both currencies, not only their common parity but also those against third currencies, under the authority of the Fund. Later, the European Monetary System instituted a rule of unanimity for any change in central rates within the group. But if maintaining a common exchange rate policy, or even a common currency, had suited the interests of the two countries, nothing in their membership of wider groupings would have stood in the way of doing so. The Belgium-Luxembourg monetary union—helped, no doubt, by the dominance of one of the two partners—has remained intact through seventy years of institutional change in the world and in Europe.

7 Concluding Observations

Considering the 1943 agreement from the perspective of 1993, the conclusion we must come to is that the role of the Belgo-Netherlands monetary agreement was essential at the time and yet of transitory importance. To give the impetus to a customs union between the two countries it was necessary, in view of the expected shortage of foreign exchange in the post-war years, to line up mutual financing (which soon had to be enlarged) and this in turn was facilitated by a common approach toward post-war exchange rates. In addition, the bold initiative taken by the two countries at an early date gave encouragement to a broad network of similar arrangements among the countries in Europe. The Benelux customs union prospered and became the nucleus of the European Economic Community in 1957; it can fairly be said that the demonstration effect worked. But as early as September 1949, as we have seen, the original exchange rate approach started to crumble.

The need for swing financing, believed essential for trade liberalization fifty years ago, has of course long since disappeared; for Belgium, it never existed. What is perhaps more interesting to observe is that the history of the two countries’ progress toward economic integration over the past fifty years does not provide evidence of a compelling need for a common currency, a fixed exchange rate, or even closely agreed exchange rate policies. Exchange rate changes of modest size since 1949, generally in the direction offsetting previous changes in real exchange rates, have not proven harmful, and have probably been helpful, to continued integration. Which should give one hope that even if European Economic Monetary Union does not become a reality in accordance with the Maastricht timetable but wide swings in real exchange rates continue to be avoided, the single market that took effect at the beginning of 1993 may nevertheless develop into a major source of expanding welfare for the continent.


Reprinted by permission from Age Bakker, Henk Boot, Olaf Sleijpen, and Wim Vanthoor (editors), Monetary Stability Through International Cooperation: Essays in Honour of André Szász (Kluwer Academic Publishers, 1994), pp. 183–199.

For an early detailed discussion concentrating primarily on the trade, rather than the financial aspects of benalux, see MEADE (1957).

De Jong (1979), p. 682; Beyen (1949), p. 145; Beyen (1969), pp. 146–147.

Quite explicitly on this, Gutt (1943).

The original Executive Board of the Fund consisted of 12 directors, of which five were appointed by the members with the largest quotas and two were reserved for the 18 Latin American members. This left five seats for the remaining 21 countries represented at Bretton Woods.

Broches (1945), pp. 11 and 58.

The comic confusion on this issue at Savannah is described in Horsefield (1969), pp. 127–129.

Beyen (1949), pp. 144–150. Beyen was the head of the Netherlands delegation at Bretton Woods and later, as Foreign Minister of the Netherlands delegation at the Messina conference establishing the EEC.

Beyen (1969), p. 147; De Jong (1979), p. 683.

Staatsblad E 76 of 26 September, 1944. The customs agreement discussed below was released on the same day. A joint press release in French by the three governments had been published in La Belgique Indépendante, 28 October 1943; if a text in Dutch was also released it did not survive in the files of the Dutch ministries concerned.

De Jong (1979), pp. 683–684; Volmuller (1981), p. 74. A common external tariff went into effect on 1 January 1948, but internal customs barriers remained in effect for an additional 15 months.

Boekestijn (1990), pp. 27-47. The original swing credit of BF 1 billion had proved inadequate long before. It was raised to more than BF 4 billion in June 1947 and other sources of credit, including the World Bank and the IMF, proved necessary to keep trade flowing before the EPU took over, Meade (1957). p. 21.

Baseleer (1943), p. 125; Jennen (1943), p. 123.

Gutt (1949). Gutt, who had become the International Monetary Fund’s first Managing Director in 1946, reported to the Executive Board of the Fund on 28 June 1949 on the discussions he had held, together with the Director of Research, E.M. Bernstein, in seven European countries on the question whether their initial par values as communicated to the Fund in late 1946 continued to be satisfactory.

Moniteur Belge, vol. 114, 7 October 1944, p. 380.

Explanatory memorandum to the Royal Decree no. 2 of 4 February 1943 (authorizing the printing of new bank notes), Staatsblad D 67.

Letter from Kessler to Van den Broek, 24 March 1943.

Letter from Van den Broek to Kessler, 1 April 1943.

Letter from Van den Broek to Herbert Feis, adviser on international economic affairs, State Department, 30 July 1943, correcting Feis’s minutes of the meeting of 26 July 1943 which referred to a rate of 12.50 Fl./£.

Letter from the Minister of Finance to the other members of the cabinet, 14 April 1943. Van den Broek’s letter made clear to his colleagues, however, that since he expected the Belgians to go for a rate of 176 BF/£, the adoption of the current Dutch-Belgian rate in the occupied territories would lead to a rate of about 10.56 Fl./£. (The difference of about 1 per cent from the correct cross rate of 10.69 Fl./£ was due to the fact that the letter used the rounded value of 6, instead of 6.053, Dutch cents to the franc.)

Gutt (1943). This view can also be read in minutes of a meeting between the interested ministers of the two countries held on 22 March 1943, that Van den Broek attached to his letter to the cabinet. The minute included the observation that ‘this agreement could be signed independently from any other, as soon as the question of the parity between the two currencies is settled’.

Letter from Beyen to Van den Broek, April 1943.

Letter from Van den Broek to Kerstens, 17 August 1943.

Letter from Van den Broek to Van Kleffens, 17 February 1945. As a matter of fact, reality had broken through as soon as the liberating armies entered the Netherlands. In view of the fact that the rapid advance of the allied troops might find them without an adequate supply of Netherlands bank notes, the Dutch authorities made a public appeal to the population to accept for the time being also French and Belgian bank notes, ‘on the basis of the following rates of exchange …’ (text of an undated public announcement).

Letters from Kerstens to Van den Broek, 11 August and 10 November 1943. However, before Van den Broek left for the United States, Kerstens had given his consent by telephone to the official rate for the Belgian franc of Fl. 0.06. But shortly thereafter (in a letter indicating only a limited understanding of the implications of the Dutch-Belgian agreement) Kerstens wanted to reopen this issue, and questioned the wisdom of ‘making the determination of the rate for the guilder against world currencies dependent on a monetary agreement with a country whose currency had never had much importance for the monetary policy of the Netherlands’. (Letter from Kerstens to Van den Broek, 17 June 1943). An internal, unsigned, Ministry of Finance memorandum dated 4 August 1944, entitled ‘Obstruction by Mr (sic) Kerstens to the conclusion of the monetary agreement with Belgium’ expresses the lasting exasperation of that Ministry with the Minister of Commerce. The memorandum reports inter aha a threat by Van den Broek to resign if Kerstens refused to sign the agreement and it notes that in the end Kerstens had given up his resistance and signed.

Telegram from Steenberghe to Van den Broek, 11 December 1943. Even after the decision on the rate had been taken and published (New York Times, 6 September 1944), Steenberghe continued to press for a change to a higher rate—which he understood to remain a possibility under the agreement with the Allies—in order to prevent excessive purchases by the military. (Letter from Steenberghe to Van den Broek 12 September 1944).

Cited from a somewhat cryptic remark in Gutt’s 1949 report to the Fund Board cited above: ‘Some here (the reference must be to Beyen, by that time the Netherlands Executive Director in the Fund) will remember the long discussions I had with some of our Dutch friends who did not first, at that time, want to do the same’, Gutt (1949).

At the earlier discussion that Van den Broek had had with the State Department it had been made clear that exchange rates were a matter for the Treasury to decide.

Ansiaux (1990), pp. 104–106.

Letter from Crena de Iongh to White, 29 January 1944, transmitting a memorandum of the Netherlands government dealing with the ‘rate of exchange for the Netherlands guilder after liberation’. The letter refers to a meeting at the Treasury two days earlier at which ‘representatives of other governments’ were present. These must have included the Belgians, but there is no record of the other government(s) that may have been represented.

Letter from Gutt to Van den Broek (sic), 13 April 1944.

This clause read: ‘It goes without saying that if a very long time elapsed between now and the landing of the Allied troops, or if the volume of quite unforeseen destructions wrought in Belgium (the Netherlands) before the landing were so much beyond expectations that it would have a marked detrimental effect on the economic situation of our country, my government would have to reconsider such a parity’.

Lieftinck (1946), pp. 2–3.

Based on confidential Fund reports on the initial par values of the Netherlands and Belgium.

De Jong (1960), p.328, note 1.

International Monetary Fund (1948), Annual Report, pp. 22–24, discusses the relevant considerations quite openly in a section entitled ‘Adjustment of par values.’

International Monetary Fund (1949). Proposed change in the guilder, (files of the Netherlands Bank), p. 2.

Bernstein (1991), p. 59. A similar observation is recorded in Black (1991), p. 66.

De Nederlandsche Bank (1949). Two lengthy telegrams sent to the Prime Minister through the Netherlands embassy in Washington DC on 18 September 1949 stated a common position in favour of a devaluation of 24.2 per cent on the part of Stikker, Holtrop, Hirschfeld (previously Secretary General of the Ministry of Economic Affairs), Beyen and Van der Valk (respectively Netherlands Executive Director and Alternate of the Fund).

De Nederlandsche Bank (1949). A further argument for a Dutch devaluation somewhat larger than that of some other countries on the continent was the desire to leave some margin for cost and price increases resulting from further internal liberalization and from the removal of price controls and subsidies (Lieftinck (1973), p. 32). For a description of the confused seesaw debate in the cabinet sessions of 18 and 19 September 1949, see Maas (1991). pp. 219–222.

Horsefield (1969), pp. 240–1.

De Nederlandsche Bank (1973), Annual Report, p. 93.

A full account on the negotiations of 24 September 1979 in Brussels is found in Boot (1992), pp. 155–164.

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