Cablegram 1169 LONDON, 31 March 1947, 8.10 p.m.
MOST IMMEDIATE SECRET
Further my 1140. [1] I lunched with Dalton today. He proposes see Nash later. I propose, therefore, advise Nash on general nature of discussion- (i) Sterling Balances. Chancellor said that his advisers stated that it was practicable for United Kingdom to carry out its undertaking to make currently accruing sterling convertible on 1/7 [2] although they would have make state [3] use of clause giving them right to have special arrangements with war-devastated countries, at the same time he does not propose make any prior announcement of their intention as he believes there is tendency in United States to realise that greater United States assistance to United Kingdom and Western Europe is essential. He agreed that continuation of our discrimination against United States goods might become embarrassing after 1st July and leave us open to pressure from United States and our own importers and agrees therefore that there should be conversations including United States, United Kingdom Australia and New Zealand before July.
(2) Accumulated Balances. With regard to accumulated balances Chancellor accepted view that it would be difficult for Australia and New Zealand to agree to formal freezing arrangements. General conclusion of discussions seem to be that best approach might be to avoid long term arrangements but carry on for an interim period on an understanding based upon following principles- (A) Nominal freedom of sterling balances.
(B) General undertaking that we would not over-import and with right of selection source of import to remain with us.
(C) However, periodical consultation on import programme and progress of actual imports.
(D) Understanding about availability of accumulated sterling for debt redemption, purchase of capital assets, loan under-writing and similar promises.
Generally this approach seemed much more flexible than that implied by Eady’s conversation which suggested that United Kingdom would press strongly for formal limitation of amounts to be drawn from accumulated funds.
Eady and Cobbold have been visiting India and the Middle East countries in relation to treatment of sterling balances but I told Chancellor that I thought our view would be that a visit to Australia by these officials would be inappropriate. However, detailed discussion of arrangements in my opinion essential and consider it desirable that Treasury Officials from Australia should come here at early date.
[matter omitted]
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1 Dispatched 28 March. It reported an exchange of views between Eady, Coombs and Nash in which Eady had pressed for an agreement to limit drawings on sterling. Coombs had said that Australia was unlikely to agree to any formal freezing of funds but might agree to keep imports within the limits of export earnings.
2 Under the terms of the Anglo-American Loan Agreement, the United Kingdom was required, from 15 July, to make all sterling payments to sterling area countries for current transactions convertible to any currency.
3 A sign here indicates ‘mutilated’.
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[AA : AA1968/391/1, 96]