At the end of World War I, Britain was in heavy financial debt to the U.S. The question of repayments would bedevil both countries for decades

See ‘Mellon vs. Churchill’ Review: The Payback Problem by Benn Steil. He reviewed the book Mellon vs. Churchill: The Untold Story of Treasury Titans at War by Jill Eicher. Excerpts:

"In a nutshell, the debt story of the 1920s goes like this. Following World War I, 10 countries owed the U.S. more than $10 billion ($190 billion in today’s money), most of which had been used to purchase U.S. goods and munitions during the conflict. Britain’s share of the debt, the largest, was $4.6 billion; France owed $4 billion. Their economies in shambles, however, they were in no position to commence timely and full repayment.

President Woodrow Wilson granted Britain a three-year moratorium on interest payments, and London began paying in 1922. But the Tory government also initiated talks aimed at canceling its debt or at least reducing it significantly. Not only money, but Britain’s standing, credit and power in the world were at stake. Following much difficult and at times bitter negotiation, President Warren Harding signed the British Debt Agreement Act in early 1923, giving London 62 years to repay at 3% interest.

But matters hardly ended there. Britain’s ability to pay the U.S. was still limited by Germany’s ability to pay reparations and France’s ability to pay back loans to the British—which was also contingent on reparations from Germany. Although Washington refused, at least officially, to link these payments to debt settlement, the U.S. Dawes Plan of 1924 encouraged U.S. banks to lend to Germany as a means of speeding its recovery and allowing the continued flow of reparations—and, thereby, debt repayment to the U.S.

By 1929, however, the fragility of this circular structure of payments from the U.S. to Europe and back again had become too apparent to ignore, and another Washington initiative—the Young Plan—was signed to reduce German reparation payments. Germany, however, unilaterally canceled reparations in 1933, in the midst of the Great Depression, and Britain, France, Belgium and Italy defaulted the following year. Their debts, and those of seven other nations, remain on the books of the U.S. Treasury."

"Churchill . . . framed it as a moral affront that Washington should treat the debt, incurred in a noble common cause, as a mere commercial obligation. As a practical matter, he was sure the debt would never, and could never, be repaid"

"Europe was obliged to dump goods in the U.S. to raise the dollars needed to service the debt, undercutting American business. U.S. tariffs, which Mellon publicly defended, only made the problem worse."

"Hailing America’s new creditor status in 1916, President Wilson crowed: “We can determine to a large extent who is to be financed and who is not to be.”"

Related posts:

In 1923, Germany printed money to pay workers who were told to stay at home 

World War I Finally Ends (a post from 2010 when Germany made the last payment for war reparations from World War I in 2010 that may have contributed to the hyper inflation)  

When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923)