Further my 1140.  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  although they would have make state  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.