Your E.117 [1] and 147. [2]

(1) I am very pleased to learn of the arrangements which have been
made to bring together United Kingdom and United States experts in
order to consolidate the two plans together with any other
suggestions received. Because of our great dependence on
international trade it is particularly important to Australia that
agreement should be reached on financial machinery which will take
full account of the interests of both creditor and debtor
countries.

(2) I have carefully studied the conditions which you suggest must
be fulfilled before Australia could participate in any currency
plan and would make the following comments.

(3) Your (1) [3]-'Adequate to our needs' must of course be
interpreted objectively and the condition might be reworded
'adequate to our reasonable needs'.

(4) Your (2)-In order to remove some ambiguity this might be
reworded as follows 'Each member country recognises the
international obligation to maintain a high level of employment
and to raise consumption to the highest level which can be
justified by its resources and productive efficiency'.

(5) Your (3)-I agree that we must get as much pressure on
creditors as possible but we must recognise that it may not be
practicable to obtain agreement on prohibitive penalties. I feel
therefore that your (3) might be altered to read 'Each member
country recognises the international obligation to avoid
persistent credit and debit balances of payments and the scheme
provides measures for exerting reasonable pressure on countries
failing to carry out this obligation'.

(6) Your (4)-I consider we should be satisfied with the insertion
of your (2) and (3) as amended in the policy responsibilities of
members along the lines suggested by Coombs in his draft
amendments. [4] In the event of failure of other countries to
carry out these policies Australia would then have good moral
ground for obtaining special assistance or for withdrawing without
stigma if that course became desirable. I suggest therefore that
your (4) should be dropped.

(7) Your (5)-I feel that the only practicable condition here is
that no single country should be in a position to dominate the
Fund or to veto effective action by it and that your (5) should be
reworded accordingly.

(8) I greatly appreciate Coombs' account of discussions with
United States experts. [5] Both the substance and the tone of the
representations made by himself and Brigden appear from the report
to be very satisfactory. I particularly appreciate his efforts to
separate participation from contribution and to enlarge the
resources of the Fund. I have only the following comments on
specific amendments:-

III. 3 (b)-The proposed participation quota for Australia appears
to be about 66 millions Australian. This would be in practice less
liberal than the Clearing Union proposal.

III. 6-This may need reconsideration if the contribution is to be
small in relation to the participation quota. Our aim should be
steadily to reduce the importance and significance of the
contribution relative to the participating quota.

V. 1-The reduction of United States predominance might be more
easily achieved by lessening the majority required for certain
decisions to two thirds and limiting any country's votes to 20 per
cent.

V. 8-It would be better not to press the proposed amendment but to
rely on our moral right to regain freedom of action if we are
faced with difficulties that can be attributed to failure of major
economic countries to carry out agreed policies. Any specified
time limit may be embarrassing to the debtor in emergency and the
specifying of a short period gives an appearance of instability to
the whole scheme. At the same time, the normal notice of
withdrawal in the second paragraph of V.8 might well be reduced
from two years to one year.

(9) With a view to the forthcoming attempt to consolidate the
plans
the experts here are preparing some brief notes on the major
issues which will arise, e.g. capital subscription versus banking
principle, quotas, automatic right to a limited exchange
depreciation, etc. [6] Before sending these, however, I should
like to have the opportunity of studying the American replies to
Coombs' suggested amendments to the Stabilisation Fund. [7] It
should be emphasised, however, that the general framework of the
Clearing Union is much more likely to be politically acceptable
here than that of the Stabilisation Fund which has the appearance
of reintroducing the gold standard. The experts also prefer the
Clearing Union approach to the problem because it offers better
possibilities of obtaining a more powerful and flexible instrument
for the desired purposes.