Agendum 669E 14 NOVEMBER 1946,
CONFIDENTIAL
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
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1 Volume VII, Document 260.
2 Volume VIII, Document 263.
3 Volume IX, Document 212.
4 Document 148.
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