7 Beasley to Chifley

Cablegram 53 LONDON, 27 March 1948, 12.23 p.m.

IMMEDIATE SECRET

The chancellor invited me to call on him Thursday evening. He outlined seriousness of present drain on sterling area gold and dollar reserves and emphasised importance of maintaining reserves at highest level prior to receipt of Marshall Aid. He also stressed that Marshall Aid may not cover existing United Kingdom dollar deficit and almost certainly not total sterling area deficit and that sterling area reserves must be maintained to meet acute situation that will arise when Marshall Aid ceases. In view of this situation he requested that Australia- (A) Reduce her expenditure in dollar area to absolute essentials only.

(B) Increase dollar exports to maximum extent possible but not to divert goods which other sterling area countries would otherwise be compelled to buy from dollar area.

(C)Draw her full quota of United States dollars from I.M.F.

Cripps stressed that if we do not draw our I.M.F. quota of dollars now we win lose our rights i.e. our ability to draw is not cumulative. [1] I asked whether Australia would be assured that she would retain right to purchase reasonable amounts of dollars from sterling area central dollar pool. Cripps replied that last thing the United Kingdom wanted was to pay dollars for Australian foodstuffs. As long as there was a sterling area dollar reserve Australia would be entitled to draw reasonable requirements. I also enquired whether Belgian suggestion for a new Western Union currency for European trade was likely to be adopted. Cripps pointed out that Belgium obviously favoured idea because Belgian monetary area had an export surplus with many European countries which Belgium wish settled in dollars or gold. As a result of this it was becoming increasingly impossible for France and Holland to trade with Belgium.

Cripps nevertheless envisaged three currency blocs-east of Iron Curtain, Western Union and Western Hemisphere, with Western Union as part of sterling area. Introduction of a new European currency is most remote. Most serious and authoritative American thinkers realise that only practicable world currency is sterling.

Canada after five years of high post war living has been made to realise by her failure to obtain a loan from United States that her economic position is un[tenable]. [2] Outflow of capital to South Africa is causing grave concern to United Kingdom. Only effective means of stopping this would be to exclude South Africa from sterling area but this is unthinkable as long as she provides us with gold.

I mentioned that Australia had noticed a certain redirection as well as expansion of British exports. Australia realised that Britain is compelled to offer commodities in world short supply to Argentine and other countries in return for imports essential to minimum British standards. In addition it would seem reasonable that Britain increase her exports to Europe under scheme of European self-help which is the sine qua non of Marshall Aid.

Naturally Australia is worried lest this observed policy will result in reduced exports of goods essential to Australia and which if unobtainable from United Kingdom may have to be obtained from dollar areas. Cripps replied that apart from textiles it was impossible for United Kingdom to increase appreciably her exports to dollar area. If we can stimulate increased production in Europe this should react to Australia's benefit as well as our own because United Kingdom regards members of Western Union as virtually members of sterling area. When I suggested that United Kingdom membership of a European Customs Union (progress towards which has been more rapid than we originally believed possible) would seem to entail a reduction in Imperial preference, Cripps replied that a European Customs Union would open new markets for Australia.

I also asked whether Australia would have some guarantee that we would be permitted to draw on accumulated sterling balances in advent of a bad season or if increased supplies of world scarce essentials were available from United Kingdom. Cripps agreed that we were free to do so.

Fact that Australia has continued to supply United Kingdom with non ferrous metals for which there is at present a ready market in America was appreciated by Chancellor. He also stated that if Australia had any queries about trade or finance policy he would welcome any approach to him. I believe that present Government in United Kingdom is and intends to play the game with Australia but I cannot rule out possibility that at some future date Australia may be informed that United Kingdom simply has not dollars to sell us. In view of cable from C.R.O. on United Kingdom export policy and imperative need of this country to satisfy American public opinion that she is supporting European self help we shall not receive from United Kingdom in immediate future the quantity of world scarce goods we desire. Placing of forward orders is essential and official assistance may be desirable. Cripps appreciated our anxiety about scope of Marshall Aid and our continuing right to draw dollars for our own needs. Whilst Cripps maintained attitude that Britain although a part of Europe still had its obligations to other members of sterling area I feel that United States view will be that this aid is for Europe.

Having in mind the non-discrimination clause in last Loan Agreement and not yet being in full possession of details as to how this additional aid is to be administered you will note how important it is to keep close to this question. Situation here associated with all movements in Western countries is most delicate and political considerations are weighing heavily upon decisions. It is a real struggle for survival economically, strategically and politically and in a situation of this kind no one can accurately forecast future events.

It means constant attention on our part and through our representative (Nimmo) on Sterling Area Statistical Committee plus acceptance of Cripps's offer to discuss with me at any time events as they arise. We hope we will be able to keep abreast of situation.

1 Upon reading this, Charley dispatched cablegram 30 asking Beasley to clarify Cripps's statement.

2 Matter in square brackets corrected from cablegram C58, dispatched 30 March 1948.

[AA: A1838,708/12A]