Reference your telegram 45. [2]

Clearing Union.

(1) The Government has considered the Clearing Union proposals
generally but because of pressure of Parliamentary matters has not
been able to give them detailed attention. However, we assume that
the proposed discussions will be purely exploratory and non-
committal and primarily designed to obtain the general reactions
of Allied Governments in London. The following notes are therefore
intended to indicate the lines along which the Government's
thoughts are developing.

(2) In general the Clearing Union is regarded here as offering
good prospects of facilitating the restoration and maintenance of
world trade and of overcoming international exchange difficulties
in the post war period.

(3) It is realised that pieces of international machinery such as
the proposed Clearing Union cannot of themselves ensure these
objectives unless the more important countries at least agree upon
and adhere to internal and external policies consistent with the
promotion of world trade and the elimination of exchange
difficulties. In our view essential features of such a policy are
maintaining a high level of employment and avoiding accumulation
of large international reserves. In these ways each country will
exercise its maximum demand on the produce of other countries.

(See Prime Minister's statement on Post-War Nutrition and Food
Policies.) [3] We feel, therefore, that any machinery established
should as far as possible provide adequate sanctions against
countries not adhering to the agreed policy.

(4) In the field of the Clearing Union the accumulation of
excessive international debits or credits is evidence of failure
to maintain the appropriate policies. The plan already provides
adequate disciplinary provisions for countries with large debit
balances but only a very mild penalty for those with large credit
balances. The Government feels that effective penalty provisions
are necessary to ensure that countries tending to accumulate
excessive credit balances do in fact take appropriate measures to
deal with them. (Such as those outlined in sub-paragraph 7 of
paragraph 7 of the Clearing Union Document.) [4]

(5) It is recognised that the working of the plan depends upon
American co-operation and that it may be impossible to get United
States to accept such discipline. It is also possible that the
forthcoming discussions may not be an appropriate place to raise
such issues.

(6) We shall be glad to receive a detailed report on the reactions
of the Allied Governments in London to the proposals.

(7) For your information we would add that although we have not as
yet received the United States Stabilisation Fund plan in its
latest form we have an early draft which is now being examined.

[5] A comparative analysis of the two proposals is now proceeding
and upon receipt of the revised draft of the Stabilisation Fund
plan we will advise our views.

(8) In the meantime we shall give immediate attention to any
particular aspects of the United Kingdom Clearing Union plan upon
which you may desire further advice.

This cable represents the views of the Inter-Departmental
Committee and has not yet been adopted by Cabinet but is generally
approved by Chifley and Evatt.