I have made contact with Arthur Smithies who has just taken temporary charge of ECA Division of Fiscal and Trade Policy which is responsible for policy and decisions regarding off shore purchases. Smithies (now a naturalised citizen) used to be my Economic Assistant in Canberra before the war and is very anxious to talk with me at length regarding problems confronting ECA in relation to Australia and other parts of sterling area outside United Kingdom. He assured me ECA, Treasury and State Department are very sympathetic to problems of sterling area in relation to ERP but they are hampered by legal difficulties which may force their hand on the question of sales of dollars by United Kingdom to reserve of Sterling Area. Their present feeling appears to be that the simplest solution from their angle would be borrowings by rest of sterling area from Export-Import Bank (if only they could induce us to borrow). They also appear to feel that extension of sterling credits by United States, to United Kingdom on firmer and longer term basis than mere building up or even informal freezing of liquid balances in London would strengthen their hand in any attempt to help us. I found Smithies and some of his colleagues very eager to talk further with me on the general problem and I feel this offers valuable opportunity to present the problems of the rest of the sterling area in an accurate and sympathetic light. So far as Australia itself is concerned I feel somewhat hampered, however, by complete ignorance [about] what transpired in your London talks, and some uncertainty as to where your opinion now rests on such matters as credits to Britain and borrowings from United States. I shall therefore appreciate any general guidance you can give me, indicating what is for my own information and what (if anything) may be passed on. McFarlane will not return until mid-August, and as Smithies will leave shortly thereafter and policy is being determined now, I would like to take advantage of present timely opportunity to influence their thinking.
2 Would also find useful any arguments - even tenuous ones - which Ryeeler's boys can [pro]duce to demonstrate that ECA dollars spent in Australia would contribute more to European recovery than ECA dollars spent directly in United States.