Reciprocal Lend Lease.
Have examined U.S. memorandum  (received from American Minister ) and following views of Government on questions raised are transmitted for purpose of discussions. They should be read in conjunction with my telegram 14 of 31st March. 
(1) Lend Lease Agreement We are not at present clear what precisely is meant by this paragraph. We have since received telegram 358 of 4th April from British Government which apparently envisages separate agreements for reciprocal aid linked to U.K.-U.S.A. Mutual Aid Agreement.  So far as Australia is concerned we feel that if U.S.A. desires results of discussions embodied in formal agreement it should be confined to immediate issues dealing on one hand with reciprocal aid to U.S. and on the other hand with assistance by U.S. and U.K.
to safeguard our balance of payments. A short agreement involving all parties would serve our interests best and would appear sufficient.
We would prefer this to the course mentioned in 3 (a) of telegram referred to which would involve separate agreement on lines of full Mutual Aid Agreement. If it is necessary to link up triangular agreement as suggested above to Mutual Aid Agreement this might be done by simple reference to Article 2 rather than by invoking whole of that agreement.
(2) Assistance to U.S. Forces in the Field Views of the Government are:-
(a) Willing to provide local supplies and services as far as practicable having regard to convenience of supply and economy in shipping. (Assume this is intended to apply only to U.S. forces in Australia. If desired, however, to cover forces elsewhere, for instance Philippines for which we have provided supplies to value of close on 500,000, please advise.) (b) Agree as general principle assistance under (1) should be furnished as reciprocal aid.
(c) Consider some flexibility will be necessary, for instance, there are some local expenditures which it is desirable or convenient for U.S. forces to make from their own funds. Line of demarcation can be worked out here with U.S. authorities.
(d) Pay and allowances should be provided by U.S. This is now being done by U.S. buying Australian currency and arrangements are satisfactory.
(e) All supplies from U.S. or other oversea countries should be provided by U.S. Allied Supply Council has been examining question of supplies generally and has listed certain articles to be obtained from U.S.
(3) Shipments to U.S. or upon its Order (a) Government accepts as general principle that any military equipment supplied by Australia should be provided as reciprocal aid.
(b) All other exports from Australia to U.S. should continue to be paid for in dollars.
(4) British Commonwealth Dollar and Exchange Position (a) For reasons given in my telegram 14 Government regards it as essential that Australian balance of payments should be assisted in such a way as to maintain our sterling balances at reasonable level.
(b) For current financial year a deficiency of 65 million pounds Australian is expected made up of U.S.A. 16, Canada 16, U.K. etc.
33. As U.K. provides exchange to meet our payments in U.S.A. and Canada this really means a sterling deficiency. (Some improvement expected next year but appreciable deficiency still likely.) For current year we are proposing to provide 35 million from reserves of London funds which will be reduced to below 50 million which is regarded by Commonwealth Bank as dangerously low level. We had previously commenced talks through Bruce  for U.K. to provide balance by leaving 30 million of overseas war expenditure on open account and have been awaiting results.
(c) It is suggested that desired assistance should be worked out by some triangular arrangement between U.S., U.K. and Australia in which dollar position of United Kingdom and Australian sterling balances are safeguarded.
(d) Government greatly appreciates desire expressed in unofficial views of Acheson  'to work out some indirect means whereby Australia can meet cost of American requirements in Australia and U.S. can reimburse us by helping to meet some of our other overseas obligations to roughly an equivalent amount'. The following methods of indirect assistance should be first suggested:-
(i) Maximum diversion to Lend Lease of present cash obligations for supplies from U.S.A. (See 4(e) of telegram 14.) (ii) All future war and essential civil needs (including motor spirit) required by Australia and which U.S. can supply to be provided by U.S. under Lend Lease.
You might also explore generally with U.S. authorities possibility of assistance in connection with our other overseas obligations including imports from Canada and interest on our public debt in U.S.A.
(e) Apart from proposals mentioned in (d) it will still be necessary to arrive at some broad agreement which will ensure our sterling funds being maintained at reasonable level without incurring liability for post war debt. Government stresses great importance of this requirement and considers it should be done as part of triangular arrangement.
(5) General The foregoing is, of course, subject to modification in the light of such further questions as may arise in the course of the discussions and we shall be glad if you will keep us fully advised particularly on 4.
A separate cable has been forwarded to the Legation  making some alteration in figures telegraphed in our 251. Amended figures are best estimates now available but unforeseen circumstances may result in some further variation.
The question of detail records to be furnished to U.S. regarding all forms of reciprocal aid by Australia may arise. We desire to avoid too much detail and suggest this could best be discussed with U.S. authorities here.