I must begin by a sincere apology for not having written sooner; I have two excuses: one, that you left me with some pretty severe problems; the other, that too many things are happening all at once.
The first, and perhaps most serious, problem I have been worrying over is your general import policy. You feared, I think, that as from 15th July some change would be called for. I said to you, and I confirm, that there is nothing in the Anglo-American Agreement (there could not be, since you are not a party to it), or elsewhere, which could call for a change.
The fact that your current sterling earnings become de jute available for current expenditure in any currency area, instead of de facto available as hitherto, does not alter the position. As I see it, you are in no way bound to diminish or remove import licensing vis-a-vis the United States, or anybody else.
This being so, I must beg of you to use all the influence you have in favour of economising to the utmost in your dollar expenditure.
The reasons for this appeal will be patent to you in the Chancellor's statement about our Import Programme, and in the figures he is giving to Parliament today. The position disclosed therein is obviously much more disquieting than when we communicated with your Prime Minister in [January] ; and the need for all the help you can give us correspondingly increased.
This has an obvious influence on the topic of your sterling balances, the drawing-down of which will follow the pattern set up by your import policy.
I can well understand your desire not to proceed by way of formal agreement, providing for specified releases. I can also well understand your unwillingness to reimpose import licensing on imports from the sterling area.
Yet this leaves the dilemma that there would in fact be no effective control, either from your side or from ours, on the drawing down of the sterling balances to an extent which-quite frankly-could be highly embarrassing to us. You are, in fact, asking us to reinsure the effects of an import policy which gives a very free rein to consumers demand.
I noted that you felt that there must be some elbow-room available to the Commonwealth, even though we shared the belief that in fact your sterling balances would not be lower in mid-1948 than they are today. But I do not feel that the figure of 30 or 40 million which you mentioned could be justified in normal circumstances.
Could we not make an effort to meet our joint anxieties by something like the following? 1. We should get an agreed figure for the sterling balances as at 30th June, 1947.
2. You would give us an assurance that you would conduct your import policy so that the balances on 30th June 1948 would be no lower than the figure so ascertained.
3. In order to make a very real contribution both to ensuring that result, and to our immediate dollar needs, you should sell us currently against sterling all newly mined gold coming into your hands after 30th June 1947.
4. During the year covered by this arrangement, the whole of your sterling balances would be freely available for expenditure in any currency area, so that no separate working balance would be needed, but by the end of the year, you would expect to have replenished any temporary drawings reducing the balances below their present level.
5. In the event of any serious decline in Australia's export income (due to major falls in prices, bad harvest etc.), or in the event of any serious worsening of our own position, or unexpectedly heavy drawing down of Australian sterling balances, the two governments would consult together as to the appropriate measures to be taken.
6. In the event of such consultation, consideration would be given to the possible use by the Commonwealth of- (a) the existing gold reserves of the Commonwealth;
(b) the facilities approved by the International Monetary Fund.
7. In any event, consultation would take place before the 30th June, 1948, as to the possible extension of such an agreement.
I must make it clear that I should have to submit any such arrangement to the Chancellor [of] the Exchequer before it could be formally put to you. I should hope, however, that I might do so with some assurance that it reflects what would seem reasonable to you in the light of our discussions.