As you probably know by this the Prime Minister has cabled to Mr.

Makin a request that you should attend the meeting of Bretton
Woods Governors on 27th September as Australian observer.

2. It is not intended to send you any formal instructions from
here but I have thought that I might suggest one or two points
which have a particular interest for us and which may have a
relevance to the business to be done at the meeting of the
Monetary Fund Governors.

3. No decision as to membership will be taken here until the new
Cabinet is formed after the elections on 28th September. We
understand, however, that unless one or more new members are
admitted to the Fund at this meeting of the Governors this delay
on our part might not destroy our chance of gaining an Executive
Directorship, were we to join at a comparatively early date
thereafter. You might therefore consider the possibility of
suggesting to the United Kingdom Delegation that in order to keep
the opportunity open for us they might find ways and means of
delaying the entry of countries like Italy and Sweden who are not
members of the United Nations and who were not Bretton Woods
'originals'. The United Kingdom people, as you will remember, were
extremely anxious that we should get a Directorship at this stage
and they might be prepared to do a good deal to keep the path
clear. I am enclosing an extract from the recent Annual Report of
the Governor of the Commonwealth Bank in which he gives it as his
opinion that Australia should join the Monetary Fund. This might
be of some assistance to you in persuading them that such a move
on their part would be worthwhile.

4. Perhaps the argument could be used that since the time within
which original participants in the Bretton Woods discussions may
join on original terms has been extended to 31st December 1946 it
would be reasonable to leave open till then an opportunity for
such countries to nominate for a Directorship or at least to take
part in the election of a Director, which they would be precluded
from doing if a sufficient number of other countries are admitted
at this meeting to make the immediate election of a member
necessary.

5. We are assuming that the resolution which the United Kingdom
put forward at the Savannah Meeting and which seeks a
interpretation of Article 4 Section 5 of the Monetary Fund
Agreement will come forward for discussion. [2] A good deal of
attention has been given to this matter here and when Mr. Melville
went to the Savannah Meeting he was asked to suggest to the United
Kingdom Delegation an amendment of their draft resolution which
would give it a wider applicability. By way of background I am
enclosing a copy of a letter which Mr. McFarlane gave to him
before he left. [3] You may have seen this letter and as you will
recall Mr. Melville discussed the subject with the late Lord
Keynes who thought that our suggested wording might be more
suitable than their own. Since their draft had been given a set
form, however, it could not be altered at that stage. Later when
Dr. Coombs was in London with the Prime Minister he discussed the
question with officials of the United Kingdom Treasury and put our
views before them.

6. I have thought that I might also draw your attention to one
aspect of Article 23 of the revised U.S. draft trade charter
which, as we interpret it, appears to curtail quite considerably
the facilities of Article 14 (Transition Period) of Monetary Fund
Agreement. Under para. 2 of Article 23 of the trade charter
countries which belong to both the I.T.O. and the Monetary Fund
may not invoke Article 14 of the I.M.F. Agreement for the purpose
of imposing exchange restrictions except such as 'complement and
correspond to' quantitative restrictions authorised for balance of
payments reasons by the trade charter. Under the I.M.F. Agreement
of course member countries have a general right to maintain
exchange controls for a three or five year transition period and I
think this has carried a good deal of weight with countries
contemplating membership of Bretton Woods. The revised U.S. trade
charter of course no longer requires common membership of the
I.T.O. and Bretton Woods and I might mention that when Messrs.

Winthrop Brown and Phillips [4] were here recently they told us
that this provision had been deliberately omitted in the hope that
countries which could not see their way clear to join Bretton
Woods might nevertheless be able to enter the trade organisation.

However for countries which may be contemplating membership of
Bretton Woods and also regard membership of the I.T.O. as
unavoidable the point does become very material. While it is not
likely to come under formal discussions at the meeting of
Governors it may be a factor in the background of any discussions
as to the accession of new members and we would be greatly
interested to know of any reactions which you may hear. I am
enclosing a preliminary note on Article 23 of the U.S. trade
charter which has been prepared at the Treasury.

G. P. N. WATT
Acting Secretary

P.S. I do not want para. 3 to be read as a forecast of what the
Government decision will be as regards membership of Bretton
Woods.

G. P. N. W.

Enclosure 1
Extract from Annual Report of Governor of the Commonwealth Bank
30th June, 1946

International Monetary Arrangements:

The International Monetary Fund constituted by the Conference at
Bretton Woods, New Hampshire, U.S.A., in July, 1944, entered into
force on 31st December, 1945, by which time governments having the
prescribed 65 per cent. of the total of quotas had signed the
agreement. Of the countries whose delegations attended the Bretton
Woods Conference, Australia is one of a small number which so far
have not joined the Fund. At the present time membership has
reached 83 per cent. of the total of quotas. At the first meeting
of the organisation at Savannah early in 1946 it was decided to
extend the date up to which the Agreement should remain open for
signature by countries represented at Bretton Woods, to 31st
December, 1946. Thereafter, Australia could become a member of the
Fund only at such time and in accordance with such terms as the
Fund might describe.

In appraising the issue of joining the Fund or of remaining
outside it, the national interests must be studied. No country can
for long, at any rate, be expected to make disproportionate
sacrifices or to yield up lightly some measure of control of its
destiny to fresh international agencies which are as yet untried.

Nothing is more certain, however, than that in this atomic world,
a purely self-regarding nationalism will be the surest road to the
destruction of all the things which constitute in the long run the
real national interest.

The basic fact has to be borne in mind that in economic matters
particularly, the countries of the world are mutually dependent.

Complete freedom of action is in reality quite illusory. Freedom
to resort to currency depreciation, to impose exchange controls,
or to discriminate through various trading devices may confer
short run advantages, but past experience indicates that other
countries quickly follow suit in self-protection. No country can
expect to have it both ways.

It is my view that by active participation in the International
Monetary Fund, where she may be successful in obtaining a voice on
the governing body, Australia would be playing her proper part in
shaping the future and at the same time safeguarding her own
interest by helping to ensure that the problems of young and
developing countries, some of which share Australia's
apprehensions, receive due consideration by the larger powers.

H. T. ARMITAGE
Governor

Enclosure 2

CHAPTER III-GENERAL COMMERCIAL POLICY
SECTION F (EXCHANGE CONTROL)
Treasury Comment

Interpretation
Broadly the interpretation of Article 23 in the revised U.S. draft
appears to be as follows:-

(1) A general ban is imposed upon trade restrictions and
discriminations through exchange techniques.

(2) Members may however impose exchange restrictions on
transactions with non Members provided that in the view of the
I.T.O. these do not injure the interests of Members.

(3) Members of the I.T.O. who also belong to the I.M.F. may impose
exchange restrictions permitted under the I.M.F. Agreement.

(4) However Members who belong to the I.M.F. may not invoke the
Transition Period clause of the I.M.F. Agreement to justify
restrictions on transactions with members of the I.T.O. unless
these 'complement and correspond to' quantitative restrictions
permitted under Articles 20, 21 and 22 of the Charter.

(5) Further Members of the I.T.O. who also belong to the I.M.F.

may not invoke Article XI of the I.M.F. Agreement (which permits
exchange restrictions on non Members of the I.M.F.) to justify
restrictions on members of the I.T.O. who are not Members of the
I.M.F.

(6) The authority of the I.M.F. is to be paramount in exchange
matters and the I.T.O. is enjoined to co-operate with the Fund
with a view to a common policy on exchange and trade matters.

Comment
This Article appears to curtail the provisions of the Bretton
Woods Transition Period clause for countries who are Members of
both Organisations. Under the Transition Period clause countries
had a general right to retain exchange restrictions for three
years and probably five years after the Fund commenced business.

For dual Members, however, this right would now be restricted.

Exchange restrictions could only be such as 'complement and
correspond to' quantitative restrictions imposed for balance of
payments purposes-justifiable that is according to the provisions
of Articles 20, 21 and 22 of the Charter.

Some extra measure of freedom to use quantitative restrictions for
balance of payments purposes is allowed under paragraph 2 of
Article 20 of the draft Charter for a period which would expire in
June, 1950. Presumably this extra freedom would extend to
'parallel' exchange restrictions. After that period, however,
exchange restrictions would have to conform to the conditions laid
down for quantitative restrictions in the Trade Charter. The right
to use exchange restrictions would of course expire at the end of
a five year period from the time the Monetary Fund commenced
business.

Thus the right conferred under the 'Transition Period clause' of
Bretton Woods which was subject [on]ly to a general obligation to
withdraw exchange restrictions if considered possible by the
Member country, is now qualified to the extent that exchange
restrictions must be in keeping with and serve the same purposes
as quantitative restrictions permitted under strict conditions by
the trade charter.

It may be noted that in the former U.S. draft quantitative
restrictions were to be no more restrictive of trade than the
exchange controls permitted under Article 14 of the I.M.F.

Agreement (Transition Period). Now the position appears to be
reversed and the trade charter is to become the governing document
in this matter.

Recommendation
Any attempt to curtail by means of the Trade Charter the right of
countries who are Members of both the I.M.F. and the I.T.O. to use
exchange restrictions during the transition period should be
opposed by the Australian Delegation.