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Land of Opportunity: Australia's post-war reconstruction

International monetary policy

In late 1940, as Britain exhausted its foreign reserves, President Roosevelt decided that the United States would provide Britain and the dominions with vital supplies. In July 1941, following discussions between United States and British officials in Washington, the State Department produced a draft lend-lease agreement. Article VII of the agreement committed Britain, as a 'consideration' for lend-lease, not to discriminate against American goods after the war. Article VII was the starting point for continuous arguments and negotiations, within and among governments, over post-war commercial and monetary policy. The Australian government was involved in these discussions from an early stage and it did not resolve its policy difficulties until 1947.

The chief British negotiator, John Maynard Keynes, quickly came to the view that post-war planning should initially focus on monetary policy. By reforming the currency system and ensuring that all countries had sufficient quantities of reserves, it might be possible to dismantle most of the trade barriers that had grown since 1929 and restore the system of multilateral payments on which trade expansion had been based in earlier times. Moreover, the new system would be free of the constraints of convertibility of currencies to gold. In September 1941 he wrote papers on 'post war currency policy' and 'an international currency union'. He envisaged that international transactions would be settled by 'clearing accounts' held by central banks in an international clearing bank. The bank would maintain balance of payments equilibrium between each member country and the rest of the world. The plan was subjected to intense scrutiny by British officials in the next six months and was redrafted several times. Renamed the 'International Clearing Union', it was approved by the War Cabinet in May 1942.

Meanwhile, a somewhat different plan had been drawn up by Harry Dexter White of the United States Treasury. He proposed two new institutions, an international stabilisation fund and an international bank. The fund would deal with balance of payments and foreign exchange problems, while the bank would provide relief and reconstruction capital. The fund would be made up of contributions from each member country, based on a complex formula, and it would lend foreign currencies to members with balance of payments problems up to the limit of their quotas. Member countries would agree not to alter their exchange rates or inflate or deflate their currencies except with the approval of the fund, as well as abandoning all exchange controls and reducing tariffs. The expanded White plan was handed to the Secretary of the Treasury in May 1942.

The two plans were examined and compared by ministers and officials in the United States and Britain. Australian officials took a keen interest in the proposed agreements from the beginning; Roland Wilson and HC Coombs were among the economists engaged in early discussions in London and Washington. In September 1943 a British delegation led by Keynes arrived in Washington and met American negotiators led by White. There was strong disagreement over the size of the stabilisation fund's resources, conditions of access and the control of exchange rates. Compromises were made on both sides, but the resulting draft proposal for an international stabilisation fund was much closer to the White plan than the Keynes plan. In February and March 1944 Keynes briefed officials from the dominions, with LG Melville and FH Wheeler representing Australia. In July 1944 delegates from 44 countries met at Bretton Woods in New Hampshire and argued about the allocation of quotas. The Bretton Woods Agreement provided the basis of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (later known as the World Bank). In 1945 it was ratified by the United States Congress and the British Parliament, but not the former Soviet Union. The fund and bank were established on 31 December 1945, with 29 member countries. Australia was not one of them.

The Australian response to Bretton Woods

The Anglo–American Mutual Aid Agreement was signed on 23 February 1942 and the Australian government accepted the principles when it exchanged notes with the United States on 3 September 1942. Nevertheless, there remained deep concern, both within and outside the government, about the implications of Article VII of the agreement. In particular, there was alarm that the United States was intent on destroying the imperial preference system set up by the 1932 Ottawa Agreement and that Australian industry would be threatened by the dismantling of tariffs (see chapter 13). Many Labor politicians, with deep suspicions of New York and London bankers and financiers, took an isolationist stance on monetary matters. Others, such as JB Chifley, believed that an international monetary agreement would be more acceptable if it could be linked to an international employment agreement, committing member countries to full employment policies. They hoped this would ensure strong demand for Australian exports and thus protect it from a trade imbalance. On the other hand, they were opposed to any automatic links between monetary bodies and a world trade organisation.

Cabinet considered various post-war economic proposals on 24 January 1944, drawing on memoranda by HC Coombs, the Department of External Affairs, the Department of Post War Reconstruction, the Department of Trade and Customs, and the Department of Commerce and Agriculture. It appointed a sub-committee, which reported back to Cabinet in June 1944. There were also memoranda by HV Evatt, JB Chifley, RV Keane and LG Melville. The sub-committee recognised that additional international reserves would strengthen the ability of governments to meet fluctuations in the balance of payments. The most serious obligation of the proposed scheme was the restriction on the government's ability to alter the exchange rate. Melville, who had attended the London talks, shared this concern and he also thought the scheme placed too much emphasis on the maintenance of stable exchange rates and too little on fostering full employment. Some ministers expressed complete opposition to the plan, but Cabinet decided that it would send an official delegation to Bretton Woods. The delegates – Melville, Wheeler and Arthur Tange – were instructed to press for substantially increased quotas and drawing rights, freedom to change the exchange rate to meet serious and persistent deficits, and a greater emphasis on employment in the purpose of the fund. They were not authorised to commit Australia to the proposed agreement.

In August 1944 Cabinet decided that no decision would be taken until the United States and Britain ratified the Bretton Woods Agreement. The divisions in Cabinet became obvious in early 1946, when EJ Ward made speeches and broadcasts ferociously attacking the agreement, claiming that it placed Australian sovereignty in jeopardy. Chifley acknowledged there were drawbacks, but he had decided that sooner or later Australia would have to join the International Monetary Fund (IMF). John Dedman became a convert to the cause and he made a number of speeches supporting Australian membership. Officials were also divided. Coombs feared that the agreement had awkward implications for Australia's trade policies and suggested that delay would strengthen its bargaining position. In November 1946 the Federal Executive of the Australian Labor Party voted in favour of ratification, by the narrowest of margins, but a majority in caucus remained opposed. On 25 February 1947 Cabinet accepted Chifley's recommendation and on 6 March he finally secured a majority in the caucus. The ratification bill was passed by Parliament later that month, with Ward abstaining.

Australia formally joined the IMF and the International Bank for Reconstruction and Development in August 1947. SG McFarlane, the Secretary to the Treasury, represented Australia at the meeting of the fund and the bank in London the following month. In January 1948 he was appointed as the 14th director of the fund and a governor of the bank, positions that he held until 1950.

The sterling crisis

In July 1947 sterling became convertible into dollars and immediately there was a run on the British pound, with sterling exchanged for dollars in order to buy American raw materials and goods. After five weeks crisis was averted, when the British government suspended convertibility. Like Britain, Australia had a significant dollar shortage and, as it remained a member of the sterling bloc, it was directly affected. In August 1947 the government was forced to cut petrol rations and reduce newsprint and other imports. For the next two years the shortage of dollars constrained the Australian economy and foreign exchange concerns overshadowed economic planning and decision-making. The Treasury and the other economic departments constantly monitored dollar-area imports and analysed the possible effects of depreciating the pound against the dollar, or appreciating the Australian pound against the British pound.

In mid-1949 Britain faced another crisis, as its gold and dollar reserves fell sharply. In July Dedman led a large delegation to a meeting of Commonwealth finance ministers in London, who discussed policies to bridge the sterling–dollar gap. It was agreed that dollar imports should again be cut by 25 per cent. One consequence was the reintroduction of petrol rationing, at great political cost to the government. The British Cabinet was divided on further measures to be taken, but on 18 September Sir Stafford Cripps announced that the pound would be depreciated against the dollar. Within a few days more than 20 countries, including Australia, had followed suit. Efforts to reduce dollar-area imports and increase dollar earnings met with only limited success and the Australian government was forced to seek aid from the IMF. Recalling the events of 1946–47, Chifley exhorted McFarlane, 'Remember our Homeric struggle – if you don't succeed it will be all love's labour lost' (Crisp, 1961, p. 211). On 20 October 1949 he announced that, at a cost of £9 million, the government would immediately purchase $20 million from the fund in order to meet its commitments under the restricted dollar import program.

Series: A2700
United Nations economic proposals, 24 January 1944 594
International conference on post-war monetary organisation, 31 May 1944 669
Bretton Woods Conference of United Nations experts on a proposed International Monetary Fund and an International Bank for Reconstruction, 28 August 1944 669A
Bretton Woods monetary proposals, 25 September 1945 669B
Bretton Woods monetary proposals, 17 January 1946 669C
Bretton Woods, 7 February 1946 669D
Bretton Woods Agreements, 19 November 1946 669E
Conservation of dollars, 15 August 1947 1376
Conservation of dollars, 2 September 1947 1376A
Conservation of dollars, 8 December 1947 1376B
Report on London Financial Conference, 19 August 1949 1625
Department of External Affairs
Series: A989
Post-war economic organisation: Dr Wilson's visit to London, 1942–43
A report to the Prime Minister by R Wilson and correspondence and cables concerning talks in London in October–November 1942 between British and dominions officials on post-war economic organisation, including the Clearing Union proposal, the proposed Bank for Reconstruction and Development, and international regulation of primary products.
International Clearing Union and Stabilisation Fund documentation, 1942–43
Includes the UK proposals for an International Clearing Union (9 November 1942), draft proposals by the US Treasury for a United Nations Stabilisation Fund (January 1943, October 1943), draft proposals of Canadian experts for an International Exchange Union (9 June 1943), notes by JB Brigden of a conference on monetary policy at the US Treasury (15–17 June 1943), and notes prepared by the Department of Post War Reconstruction for discussions on the Stabilisation Fund.
Clearing Union and Stabilisation Fund policy, 1942–43
Correspondence and cables on the Clearing Union and Stabilisation Fund proposals and a report (27 September 1943) by HC Coombs on his discussions in Washington and London. The correspondents include HV Evatt, JB Chifley, HC Coombs, LF Giblin, SM Bruce, SG McFarlane and WR Hodgson.
Monetary policy: UK–USA drafts, 1943–44
Includes cables on discussions between British and United States officials on monetary policy (October 1943), a note (11 January 1944) by AH Tange on a UK–USA statement on currency principles, and notes (26 January 1944) of discussions by Australian officials on international economic negotiations.
International monetary agreements: Australian participation, 1946–48
Correspondence, minutes, cables and newspaper cuttings on Australia's decision to join the International Monetary Fund, the 1947 International Monetary Agreements Act, the relationship between the IMF and the proposed International Trade Organization in the field of import restrictions, and the acceptance by Australia of the Articles of Agreement of the IMF and the International Bank of Reconstruction and Development (August 1947).
Series: A1067
UN proposals: monetary agreements, 1945
Correspondence, cables and newspaper cuttings on discussions in the United States and United Kingdom of the Bretton Woods plan. The correspondents include HV Evatt, SM Bruce and N Johnson.
Series: A1067
Bretton Woods: Australian participation, 1945–46
Correspondence, minutes and cables on the question of Australian membership of the International Monetary Fund, discussions with IMF and British officials, and the first meeting (March 1946) of the Governors of the IMF at Savannah, USA. The correspondents include NJ Makin, EJ Ward, HC Coombs, LG Melville, JB Brigden, LHE Bury, T Critchley and FH Wheeler.
ER 46/12/2 Pt 1
Bretton Woods: reports and information, 1946–47
Includes memoranda on the IMF by JJ Dedman (January 1946, 17 November 1946), JB Brigden (1 March 1946, 8 April 1946), LG Melville (26 April 1946), HC Coombs (1 May 1946) and DB Copland (2 July 1946).
ER46/12/2 Pt 27
Series: A1068
International Monetary Fund agreements, 1947
Includes a minute (2 October 1947) by FH Wheeler on the draft agreements between the United Nations and the International Monetary Fund and International Bank of Reconstruction and Development with reference to the position of the Economic and Social Council.
Empire dollar policy, 1947
Newspaper cuttings, correspondence, cables, memoranda and statements on the United Kingdom balance of payments crisis, the decision of the Australian government in September 1947 to reduce dollar imports, and Commonwealth talks in London on the dollar shortage.
Department of Post War Reconstruction
Series: A9790
Dollar import program: general, 1947–50 (14 parts)
Reports of the Inter-Departmental Committee on Dollar Import Licensing, chaired by FA Meere, and minutes and correspondence on the dollar balance of payments, imports, and dollar conservation. The correspondents include JB Chifley, B Courtice, HC Coombs, AS Brown, EJ Bunting and FH Wheeler.
London Economic Conference, 1948–49 (6 parts)
Notes of HC Coombs, CL Hewitt and JF Nimmo of their discussions in London (September – October 1948) and background notes prepared by FH Wheeler and others.
Long-term dollar policy, 1947–49 (2 parts)
Notes of the Inter-Departmental Committee on Long Term Dollar Policy, chaired by HC Coombs, and minutes and correspondence on the dollar problem and import control policies. The correspondents include HC Coombs, EJ Bunting and WE Dunk.
Series: A9816
International Clearing Union and Stabilisation Fund, 1942–43
Minutes and correspondence on international financial machinery, including the International Clearing Union proposed by Lord Keynes and the Stabilisation Fund advocated by HD White of the United States Treasury. The correspondents include LF Giblin, R Wilson, HC Coombs and AH Tange.
1943/906 Pts 1-2
International currency plan, 1943–46
Minutes and correspondence on currency stabilisation, the proposed Stabilisation Fund, the position of sterling after the war, discussions in Washington and London in 1943, the United Nations Monetary Conference at Bretton Woods (July 1944), and the proposed International Monetary Fund and International Bank for Reconstruction and Development. The correspondents include HV Evatt, LF Giblin, HC Coombs, LG Melville and AH Tange. [Note: Part 5 does not exist.]
1943/906 Pts 3-6
Currency plan: Bretton Woods, 1944–47
Report by LG Melville of the United Nations Monetary and Financial Conference at Bretton Woods and correspondence and minutes on the Bretton Woods proposals and the question of Australian membership of the International Monetary Fund. The correspondents include LG Melville, GG Firth, JB Brigden, FH Wheeler and G Schneider.
1943/906 Pts 7-8
Department of Trade and Customs
Series: A9879
International Monetary Fund and monetary policy, 1943–51
Includes a letter (7 April 1943) by E Abbott to RV Keane on British proposals for an International Clearing Union and a statement (November 1944) by JJ Dedman on the International Monetary Fund.
Bretton Woods Conference, 1944–48
Statements by JB Chifley, JB Brigden and other officials on the proposed International Monetary Fund and Bank of Reconstruction and Development.
Events leading to formation of International Monetary Fund, 1943–45
Includes statements by JB Chifley and RV Keane on economic policy and the proposed International Monetary Fund.
Series: A571
Dr HC Coombs: reports on conferences and discussions in USA and UK, 1943
Papers and correspondence, including a report (17 May 1943) by HC Coombs to JB Chifley on his discussions with the United States Treasury on stabilisation fund proposals.
Economic proposals: submissions to Cabinet, 1943–44
Includes a report (27 September 1943) by HC Coombs on his discussions in London and Washington on the stabilisation fund and the clearing union.
Letters to and from SG McFarlane on the International Fund and Bank matters, 1948–49
Correspondence between SG McFarlane in Washington and JB Chifley, GPN Watt and FH Wheeler on the activities of the International Monetary Fund and the International Bank for Reconstruction and Development.
1948/1097 Pt 1
Australian policy in relation to the dollar problem, 1948–49
Notes of a meeting (31 August 1948) of the Dollar Policy Committee, chaired by HC Coombs, and correspondence on the dollar problem and the need to influence Australian development along dollar earning or dollar saving lines.
International Bank for Reconstruction and Development, 1949
Agenda papers, reports and proceedings of the 4th annual meeting (September 1949) of the IMF and the International Bank for Reconstruction and Development, including reports by NJO Makin and SG McFarlane in Washington and minutes by GPN Watt and FH Wheeler.
IDC on Dollar Earnings, 1949–50
A report and correspondence of the Inter-Departmental Committee on Dollar Receipts, formed in September 1949 and chaired by R Wilson.
1949/2321 Pts 1-2
International Monetary Fund: Australian membership, 1946–50 (5 parts)
Correspondence, minutes, speeches and statements by JB Chifley and EJ Ward, draft Cabinet agenda, extracts from Hansard and newspaper cuttings concerning the question of Australian membership of the International Monetary Fund. The correspondents include JB Chifley, SG McFarlane, JA Beasley, FH Wheeler, JB Brigden, HC Coombs, LG Melville and DJ Munro.
HC Coombs
Series: M448
International Monetary Agreement, 1943–47
Includes statements by JB Chifley and JJ Dedman on Bretton Woods, a typescript on national central banking and the international economy, and a letter (17 September 1947) from HC Coombs to Chifley reporting on his visit to London and a meeting of the IMF.
Long-term economic policy, 1948
Documents relating to discussions in London in September 1948 between HC Coombs, JF Nimmo and CL Hewitt and British officials on long-term economic policy.
Dollar imports, 1948
Papers and correspondence relating to the dollar problem and dollar import licensing. The correspondents include HC Coombs, AS Brown, FA Meere and EJ Bunting.
Stabilisation Fund and Clearing Union, 1943
Documents on the proposed Stabilisation Fund and Clearing Union (September 1943), including a report by HC Coombs on his discussions in Washington and London.
Sir Douglas Copland
Series: CP6/1
Clearing Union and Stabilisation Fund, 1942–44 (2 parts)
British, United States and Canadian documents, minutes of the Financial and Economic Committee, memoranda by AH Tange and LF Giblin, and copies of correspondence between Giblin and LG Melville concerning the Clearing Union and Stabilisation Fund proposals.
Sir Arthur Tange
Series: M2271
Bretton Woods Conference: communications to and from the Australian delegation, 1944
Copies of cables (July 1944) to and from LG Melville, the leader of the Australian delegation, and the Minister for External Affairs and the Treasurer.
Bretton Woods Conference: reports and assessments, 1944
Draft of the Parliamentary Paper on the United Nations Monetary and Financial Conference and notes and memoranda about the conference by LG Melville, AH Tange and JB Brigden.

Further reading

Arndt, HW, 'Bretton Woods', Public Administration, vol. 6, 1947, pp. 321–8.

Butlin, SJ and Schedvin, CB, War Economy 1942–1945, Australian War Memorial, Canberra, 1977.

Crisp, LF, Ben Chifley, Longmans Green, Melbourne, 1961.

Hasluck, Paul, The Government and the People 1942–1945, Australian War Memorial, Canberra, 1970.

Miller, JDB, 'Australian public opinion: the Bretton Woods controversy', Australian Outlook, vol. 1, no. 3, 1947, pp. 33–40.

Skidelsky, Robert, John Maynard Keynes: a biography, vol. 3, Macmillan, London, 2000.

Spaull, Andrew, John Dedman: a most unexpected Labor man, Hyland House, Melbourne, 1998.

Walker, ER, The Australian Economy in War and Reconstruction, Oxford University Press, New York, 1947.