Following is the text of the confidential agreed Minute:
1. The Meeting of the Commonwealth Finance Ministers welcomes the discussions which have taken place between the United Kingdom, Canadian and United States Ministers, and agrees that the aim must be the achievement of a pattern of world trade in which the dollar and non-dollar countries can operate together within one single multilateral system. The meeting notes with satisfaction that further discussions are being arranged to take place in Washington early in September to consider action required to carry out this aim for the mutual benefit of dollar and sterling countries.
2. The meeting considers that the achievement of this aim will require action by all countries concerned which may involve important modifications in policy. The objective conditions in which a single multilateral system of world trade and payments is practicable do not at present exist. To establish them will require action by all countries both in concert and individually.
The responsibility falls both on surplus and on deficit countries.
3. Accordingly the policy of all countries should be directed towards- (a) Implementing their obligations under international agreements to take steps to promote full and productive employment without which a high level of international trade cannot be sustained.
(b) Facilitating the establishment of a world-wide pattern of production and international trade such as to make possible a system of international payments which is self-balancing.
(c) Developing the agricultural and industrial resources of under- developed countries in order to increase their levels of production and consumption and to enable them to play their full part in building the system of multilateral trade and so contribute to full employment.
(d) Exploring further the conditions and the machinery for the organisation of an adequate flow of international investment for all forms of productive development.
(e) Restoring international monetary Reserves generally to the levels which can accommodate reasonable fluctuations in international balances of payment.
(f) Collaborating in arrangements designed to ensure reasonable and stable prices for primary products.
4. A major aspect of the present disequilibrium in world trade is the lack of balance between the dollar countries and countries of the sterling area. In the past few years substantial financial aid from the United States and Canada has been necessary in order to balance the sterling area's dollar accounts. The object of the policy is to achieve balance without this extraordinary aid on the basis of a higher level of transactions and normal working of the multilateral pattern of trade.
5. The achievement of a more reasonable balance between dollar and sterling area countries can be facilitated by the development of trade between these two areas and other countries. Nevertheless any such development will not of itself relieve sterling area countries of the necessity to take direct measures to secure such balance.
6. This balance in the sterling area's dollar account at a high level of trade therefore requires a large expansion in dollar earnings of the sterling area countries and the development of production at competitive prices in the sterling area which will reduce the need for abnormally large imports from dollar countries.
7. This suggests the following course of action by sterling area countries (a) To increase the supply of manufactured goods and primary products competitive in price and quality:
(1) to dollar markets;
(2) to appropriate sterling area and other markets at present abnormally dependent upon supplies from dollar countries.
(b) To increase the supply of dollar earning services including tourist services.
(c) To promote such adjustments in the pattern of production as are necessary to achieve (a) and (b).
(d) To promote reasonable conditions designed to facilitate investment by surplus countries.
8. In order to sell at competitive prices sterling area countries should where necessary take measures to reduce their costs of production and should- (a) Bring any remaining inflationary elements in their countries under control.
(b) Bring claims upon their productive reserves both for investment and for consumption into line with the resources currently available to them, including external borrowing.
(c) Encourage action designed to increase efficiency in production.
9. Action by sterling area countries alone cannot create conditions necessary to
establish a multilateral trading system. This requires that all countries should carry out the policies in paragraph 3 above, and all deficit countries should carry out policies on lines indicated in paragraphs 7 and 8 above. Moreover surplus countries should make their full contribution to the building of a multilateral system by- (a) Maintaining a high level of employment income and demand.
(b) Assisting and encouraging the purchase of goods and services from other countries.
(c) Encouraging international investment by their nationals and through national and international institutions, particularly under conditions which do not impose limitations on the area within which funds can be spent.
(d) Promoting the gradual transfer of resources within their territories from forms of production in which their costs are relatively high compared with those of other countries.
10. Emergency measures to stem the current drain on the sterling area's Reserves are perforce negative and unconstructive. It is therefore all the more necessary to take in the immediate future any positive and practical steps that will lead towards agreed long term objectives. In this connection care should be taken to concentrate upon measures which would fit into the permanent pattern of world trade.
11. The Meeting considered that these steps should include- (I) The speediest possible increase in efficient and economic production within the sterling area of those commodities which can earn dollars or which the sterling area would otherwise have to purchase for dollars.
(II) Co-operation to secure the most effective use of resources available to the sterling area in the interests of the area as a whole, even where this involves some measure of sacrifice on the part of individual countries, such as doing without sterling area goods that in common interest should be sold for dollars.
(III) Expansion of sales of sterling area goods in dollar markets with special attention to prices, selling methods and market requirements.
(IV) An intensive effort to increase the sterling area's dollar earnings from the provision of services of all kinds, including tourism. The Meeting decided to set on foot immediately a detailed examination of application of the policy outlined above.
12. There was a full discussion of developments which had led to the recent serious drain on central reserves of the sterling area and the gravity of the position was recognised by all representatives present. With the Reserves standing at 30th June, 1949, at a figure of approximately 400,000,000, it is clear that if they continue to fall at the present rate they would be completely exhausted within about a year. This would mean the collapse of the sterling area with incalculable consequences to all countries concerned. The sterling area members of the Commonwealth agreed that in the first instance they must check this decline in reserves by every practicable means, and that immediate action to this end was vital to the very existence of the sterling area. With the foregoing considerations in front of them they examined the immediate prospects of the sterling area in full detail.
13. The sterling area representatives present reached agreement on the probable level of dollar earnings of the sterling area (excluding South Africa) in 1949/50 and examined the additional gold and dollar resources likely to be available from grants and loans to the United Kingdom and from receipts by the United Kingdom of newly mined gold. They agreed that the amount which could be made available from all these resources for their aggregate expenditure on dollar imports in 1949/50 could not exceed $2,000 million.
14. In the light of these circumstances they agreed to recommend to their Governments that each should reduce their demands in respect of dollar imports on the abovementioned resources in 1949/50 by a proportion equal to that announced by the United Kingdom. To the extent that it has not already been done, the representatives present agreed to recommend that their Governments should achieve this objective by immediate action comparable with that already taken by the United Kingdom by way of standstill measures, by re-programming of imports, [and] where appropriate by other means. The Ministers agreed to inform each other within one month of the measures which their Governments had resolved to take in the light of these recommendations. They also agreed that the situation should be kept under constant review so that further consultations could take place immediately developments appeared to make necessary any adjustment in the measures contemplated above. They further agreed that the re-building of the sterling area reserves as quickly as possible was of paramount importance, and that they should all make the maximum practicable contribution to this end. It is important that there should be arrangements for continuing consultation between the Governments concerned to ensure that the most effective measures are taken at each stage to secure the objective in view. It is suggested that the existing machinery should be used to study the problems which arise from recommendations of this Meeting and that officials at present in London should continue discussions during this week.