37 Mr R. G. Menzies, Prime Minister, to Mr S. M. Bruce, High Commissioner in London
Cablegram unnumbered 27 July 1940,
Your telegram 26th July. 
1. We did not reply to the request in telegram 254 of 17th July paragraph 6  because we thought that request was superseded by amended proposals in Dominions Office telegram No. 269  for a payments agreement the basis of which we agreed to.
2. We are anxious to meet request of the United Kingdom Government to delete the option of payment in yen pending conclusion of payments agreement but this requires further consideration because of the following difficulties:-
(a) Japan will not accept payment in sterling. We do not know whether she would accept payment in Australian currency which had to be converted into sterling on maturity of the drafts but this is unlikely;
(b) The Yokohama Specie Bank particularly and the Australian Banks to a less extent have developed a direct exchange business in yen between Australia and Japan. This would have to be discontinued if we insisted on sterling.
3. These difficulties need further consideration before we can agree to insist on payment in sterling particularly because trade between Australia and Japan may be seriously obstructed if we do insist. Japan may be willing to accept payment in Australian currency (blocked except with our approval) if this need not be converted into sterling on the maturity of the drafts. What would be the attitude of the United Kingdom authorities to this proposal? 4. Meanwhile we cannot see in what way shipment of wool to Japan is connected with our exchange arrangements. We consider that these two matters should be kept separate particularly as we have agreed to the basis of the proposed agreement between the Bank of England and the Bank of Japan.
5. We desire you to inform the United Kingdom authorities of the foregoing and urge in the strongest possible terms the release of wool immediately leaving outstanding exchange difficulties which are receiving immediate consideration to be negotiated separately.