Memorandum [CANBERRA], 11 February 1947
STERLING BALANCES
In accordance with your request I discussed this question with Mr Nash on Friday last. [1] Mr McFarlane has probably reported the substance of the discussion to you, but it may be of interest to you to have my summary of the conclusions we reached which were briefly:-
(1) Neither Australia nor New Zealand has a sufficiently large accumulation of sterling balances to be confident of convincing Parliament that they were in a position without risk of subsequent difficulty to write off any significant proportion of their present balances;
(2) At the same time it is clear that the United Kingdom had borne a disproportionately heavy part of the burden associated with the conduct of the war and that both Australia and New Zealand could reasonably make a contribution to the solution of the United Kingdom international difficulties on this score;
(3) The benefit to be derived by the United Kingdom from such a contribution would be predominantly psychological in that it would be an expression of confidence in the future of sterling and possibly an example to other countries such as India with substantially larger holdings of sterling balances;
(4) It would not, however, remove the necessity for the United Kingdom to limit the rate at which we and other holders of sterling could be permitted to draw on those accumulations for the purchase of imports. The fact that the assistance given was in the form of a contribution to the cost of the war rather than in the form of a writing down of sterling balances need not preclude an understanding between the governments concerned that, if in the future our sterling balances declined to embarrassingly low levels, we could expect assistance from the United Kingdom Government;
(5) Relatively the New Zealand sterling balance position is somewhat stronger than that of Australia, although, with a proportionately higher import and debt commitment, the discrepancy was perhaps less than the figures themselves would indicate. In the circumstances a contribution by Australia and New Zealand of 25 million and 15 million respectively would appear to be reasonable.
General Comment Sterling balances are not strong enough for me to recommend that we could afford to offer the United Kingdom this assistance without difficulty to ourselves in any circumstance. Some risk is involved. Whether this risk should be accepted is essentially a political decision. If it is desired to offer the assistance, I recommend that it should be in the form of a contribution towards the United Kingdom costs of the war, and I believe that a contribution of 25 million would involve risks of a relatively modest character. [2]
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1 Nash was in Canberra to attend the meeting of the South Pacific Commission held from 28 January to 6 February.
2 Cabinet approved a gift of A25 million as a contribution to the cost to the United Kingdom of the war in the Pacific Ocean. See Cabinet decision on Agendum 1298, dated 25 February.
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[AA : M448, [126]]