Letter [CANBERRA], 19 April 1948
DOLLAR STATISTICS AND POLICY
Following our recent telephone conversations on the various sets of dollar statistics, our telegram to Nimmo and Bury’s report of the discussions he and Brand [2] had with Haslam [3], I feel that it is worth-while attempting to put on paper some statement of what our general attitude to these statistics should be. I hope that this rough attempt will stimulate you to a reply.
2. Firstly, there is the question of our general policy towards the Sterling Area dollar pool. To my mind recent events have reinforced our previous view that every effort should be made to ensure that as far as Australia is concerned the sterling area dollar mechanism is kept on a flexible ‘gentleman’s agreement’ basis. [4] The resulting discretion preserves for us an element of elasticity and multilateralism which shields us to some extent from the strong trend in the United Kingdom finance and trade relationships towards bilateralism. Should United Kingdom impose a quota on us for dollars, nil or otherwise, and flexibility in our arrangements with the United Kingdom in this connection be lost, we would be forced increasingly into bilateralism with America and other countries, and, more important, with the United Kingdom itself.
3. The diversion of our products from the United Kingdom to the United States market with its repercussions would immediately come up for consideration. We might well become progressively involved in bilateral bargaining on commodities, based on scarcity and essentiality, and be led into a series of arrangements as to which goods we should buy or sell to particular countries. An elaborate and restrictive apparatus of trade controls, operating on narrow currency grounds and paying little attention to relative costs, might become unavoidable. This seems particularly likely when we remember that other countries including the United Kingdom will be debating what goods can be exported to Australia for quite apart from scarcity some goods are equivalent to dollars.
Note-Goods may be equivalent to dollars in two senses, first that the export of them against sterling, etc., involves the sacrifice of a dollar sale, secondly, that even if (a) is not true the buyer may be saved a dollar purchase.
4. Our general attitude therefore should be to conduct both our high and low level negotiations and interchanges with the United Kingdom in a manner which will give us the best chance of preserving the long-standing flexible arrangements whereby we draw on the United Kingdom for dollars in order to cover our realised deficit on dollar account, subject only to the condition that we take note of the changing fortunes of the dollar pool and practise a degree of economy in dollar expenditure broadly comparable to that exercised in the United Kingdom.
5. We must, of course, take account of the price which we have to pay to retain this flexibility and, as you know, the Treasurer has recently decided that a surrender of our ultimate reserves (i.e., our independence and freedom of action in a crisis) cannot be tolerated in a world as uncertain and as bleak in outlook as the present one. I think we are all fully agreed on this general point but, as you know, there is some difference of opinion as to whether Australia must retain ultimate reserves as large as our present gold holdings and our full drawing rights from the Fund. I personally think that something less than this would be an adequate reserve. But the Treasurer has decided otherwise.
6. This, however, does not deny the need for continued efforts to retain our present flexible ‘gentleman’s agreement’ basis with the dollar pool. If anything it may mean that our efforts should be intensified.
7. The flexibility basis has unfortunately been severely shaken recently. The convertibility crisis, the imposition of quotas on India, Eire, Pakistan, etc., by the United Kingdom, coupled with the departure from the arrangement of certain countries, e.g., South Africa, and the continued rate of drain, have undermined it considerably. While our actions cannot markedly influence this trend as far as other members of the pool are concerned, our conduct and attitude towards negotiations with the United Kingdom do affect the question whether and how long Australia and New Zealand continue to operate on the flexible ‘gentleman’s agreement’ basis.
[matter omitted]
26. Your other fear was that Nimmo’s scouting activities for the purpose of his background letters might weaken us more than they strengthen us. Your point was that by putting a representative in London to attend meetings of the Sterling Area Statistical Committee and to nose around in a discreet fashion, we were giving the United Kingdom people an additional opportunity ‘to hammer us’. But if this were so, surely it would be dangerous to have any representative of any kind in any overseas centre. After thinking the matter over since our discussion I am convinced that provided Nimmo and Bury do not ‘stick their necks out’ and intrude on policy matters without instructions there is no danger. In fact, I think the information we gain is of very real advantage. I have always thought that the Treasury should be well represented in both London and Washington. I would add that both the Treasurer and the Acting Secretary are very keen on getting as much background from London as possible. In both cases their final words to Bury were on those lines.
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1 E.B. Richardson, Member, Advisory Council of Commonwealth Bank of Australia.
2 L.B. Brand, Australian Bureau of Census and Statistics.
3 E.P. Haslam, Commonwealth Bank of Australia, Sydney, then joined Bank of England.
4 For the agreement value see Volume 12, Document 159.
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[NAA: A2910, 453/7/1, vi]