THE BRETTON WOODS AGREEMENTS

A. Previous Consideration by Cabinet
Agendum No. 669A of 28th August, 1944
This Agendum submitted to Cabinet the proposals of the Bretton
Woods Monetary Conference of July, 1944 for the establishment of
an International Monetary Fund and an international Bank for
Reconstruction, together with the report of Mr. Melville, Leader
of the Australian Delegation to the Conference. Mr. Melville's
report [1] is given in Attachment A and the Articles of Agreement
of the Fund and the Bank are given in Attachment B.

2. Cabinet deferred a decision on Australian participation in the
proposed organisations but authorised the tabling in Parliament of
the proposals together with a summary of the report of the
Australian Delegation.

3. One of the reasons for deferment was the desire to avoid any
definite commitment by Australia until it was known whether the
proposals would receive the endorsement of both the United States
Congress and the United Kingdom Parliament.

Agendum No. 669B of 24th September 1945 [2]

4. The United States Congress ratified the Agreements in July,
1945 but the United Kingdom deferred action pending the outcome of
the Anglo-American negotiations for a loan and the settlement of
Lend-Lease.

5. Cabinet decided to continue to defer consideration of the
Agreements but directed that an attempt should be made to secure
an extension of the 'deadline' of 31st December 1945 for
acceptance as an original member.

Agendum No. 669C of 14th January, 1946
6. An extension of the 'deadline' of 31st December 1945 for
original membership could not be obtained, largely because such an
extension would have required the re-submission of the matter to
the United States Congress.

7. In the meantime the Anglo-American Loan Agreement was concluded
on 6th December, 1945 and the United Kingdom thereupon ratified
the Bretton Woods Agreements. The United Kingdom Government made
clear, however, that they would withdraw from the Fund if Congress
failed to ratify the U.S.-U.K. loan. The statement to the House of
Commons by the Chancellor of the Exchequer is given in Attachment
C.

8. By the closing date (31st December 1945) the United States, the
United Kingdom and 27 other countries had ratified the Agreements
and the Fund and the Bank came into being.

9. After considering these developments, Cabinet decided to
continue to defer a decision on the question of Australian
participation.

10. Some of the factors influencing this decision were:-

(a) U.S. Congress had not yet ratified the U.S.-U.K. loan.

(b) The operations of the Fund and the Bank would necessarily be
affected by those of the proposed International Trade Organisation
which, however, was as yet too indefinite for a judgment to be
made.

Agendum No. 669D of 4th February, 1946
11. On the invitation of the United States Government, Cabinet
decided to send Mr. Melville as an Australian observer to the
first meetings of the Boards of Governors of the Fund and the Bank
at Savannah, U.S.A., in March, 1946.

12. Mr. Melville's report' is given in Attachment D.

13. A major development at this meeting was a resolution of the
Fund permitting until 31st December, 1946, the admission to
membership on the same terms as original members all countries
present at the Bretton Woods conference.

B. Subsequent Developments
14. Since Cabinet last considered the matter, U.S. Congress has
ratified the loan to the United Kingdom and there is therefore now
no question of the United Kingdom withdrawing on that account.

other developments are:-

(a) it has become certain that the final terms of the proposed
Trade Charter and the establishment of the I.T.O. cannot be
determined until the end of 1947 or even later,
(b) the prospects of obtaining satisfactory provision in the Trade
Charter regarding the use of quantitative restrictions in defence
of the balance of payments have improved,
(c) the British Chancellor of the Exchequer has been elected
Chairman of the Board of Governors of the Fund and the Bank,
(d) at the request of the United Kingdom the Fund has defined its
attitude to the use of exchange depreciation in relation to the
maintenance of full employment,
(e) the United Kingdom is pressing the view that membership of the
Fund must be a pre-requisite for membership of the I.T.0. (Note:-

This does not mean that members of the Fund must be members of the
I.T.O.),
(f) the Fund has been established with forty-three members who
pre-war accounted for over 70% of world trade. The proportion of
current trade would be much higher because of the present virtual
exclusion of ex-enemy countries from world trade,
(g) the only important trading countries not members of the Fund
are Russia, Australia, New Zealand, Sweden, Switzerland, Spain,
Portugal and Argentina.

Further details of these developments are given in Attachment E.

15. In view of the Government's full employment policy and the
possibility that an undue rigidity in the Fund's attitude to
movements in exchange rates might have conflicted with internal
policies designed to maintain full employment, the resolution of
the Fund referred to in (d) above is highly important. The United
Kingdom Government which is also committed to a policy of full
employment attaches great importance to this resolution and
considers it removes 'any doubts which might be lingering in men's
minds regarding the interpretation of the phrase "fundamental
disequilibrium" in relation to unemployment'. The full text of the
Chancellor's statement is given in Attachment G.

16. The United Kingdom authorities are anxious that Australia
should join the Fund and the Bank and the Chancellor of the
Exchequer (Mr. Dalton) has made the following points to the
Australian Ambassador (Mr. Makin) in Washington-
(a) the present U.K. Government will remain in power for at least
four years,
(b) the U.K. Government will withdraw if the Fund attempts to
impose any policy inconsistent with full employment,
(c) the Bank of England is under the control of the United Kingdom
Government and will follow policies consistent with full
employment,
(d) the Fund has adopted the U.K. interpretation of a 'fundamental
disequilibrium' designed to protect the position of a member
desiring a change in the rate of exchange to prevent unemployment.

The text of Mr. Makin's telegram [4] is given in Attachment F.

17. The United Kingdom authorities are also anxious that an
Australian nominee should obtain an Executive Directorship of the
Fund. In this connection it seems likely that there will be an
election later this month for a further Executive Director and
that if Australia were a member there would be good prospects of
an Australian nominee securing the election. Election is by a
simple majority in an exhaustive ballot. A detailed explanation is
given in Attachment H.

C. Conclusion
18 The matter is submitted for consideration.

J. B. CHIFLEY

Treasurer