134 Prime Minister's Department to Bruce

Cablegram 33 [1] CANBERRA, 11 March 1943

SECRET

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.

1 Repeated to the Legation in Washington as no. 43.

2 Dispatched 2 March. On file AA:A989, 43/735/56/3.

3 See Document 141, note 2.

4 See attachment A to Wilson's letter of 18 January on file AA:A989, 43/735/56/1.

5 It is unclear which draft is being referred to here. Brigden, in a letter dated 1 March 1943 (on file AA:A989, 43/735/56/2), informed the External Affairs Dept that he hoped to enclose the January 1943 draft together with an official letter. These do not appear to have been sent until 29 March (see the file cited above in this note). See also Document 98, note 3.

[AA:A989, 43/735/56/3]