Cablegram 707, CANBERRA, 3 August 1948, 5.35 p.m.
SECRET
Reference my 691 following is advice now received through United Kingdom High Commissioner’s Office in Canberra: Begins.
With reference to the telegram from the Secretary of State to the Prime Minister, No. H.319[1], we have learned from London that in discussion with the Chancellor of the Exchequer and United Kingdom officials in Paris, Mr. Bissell also said that the European Co-operation Administration wished to see some direct contribution by the rest of the sterling area to the European Recovery Programme. With Australia particularly in mind, they wanted to have a contribution by way of long-term loans or grants in aid and a cessation of the piling up of sterling balances in London which merely constituted an ultimate demand on the United Kingdom. This was linked in Washington with the wider problem of the sterling balances. Their feeling was that the present system by which sterling balances were allowed to accumulate involved unrequited United Kingdom exports now or in the future. This liability real or potential would hang over the United Kingdom and delay its recovery. They would therefore like to see a funding of the outstanding sterling balances and assistance by long-term loans or grants for current balances. Mr. Bissell emphasised again that this was one of the most important elements in Washington thinking at the moment. He realised that it might be difficult for the United Kingdom to approach the sterling area countries direct in this matter and suggested that the United States Government might be prepared to make an approach themselves.
In discussion the Chancellor pointed out in reply that the financial problem varied in each sterling area country and in any case no uniform treatment was possible. But he pointed out that Australia and New Zealand had made gifts to the United Kingdom from their sterling balances, that in the case of some of their exports at any rate they have sold to us at prices below the world prices and that to some extent it was necessary for sterling area countries to hold substantial sterling balances to act as buffer or dam against the possibility of a big fall in prices of the primary products on whose sale they depended. Ends.
_[1] Document 341.
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[AA : A1838, 703/5/5]