Addressed to the Prime Minister.

Your 174 of 15th November. [1]

I have refrained from replying to your telegram sooner as when I
received it I had a meeting with Eady pending, as a result of
which I hoped to be able to give you a more definite indication of
the position.

I have seen Eady several times since his return from Bretton
Woods. [2] In these conversations, while we have touched on the
sterling balance position and Eady, I am glad to say, has not gone
back on his previous acceptance of my contention as to our rights
with regard to our post-war income, the discussion has turned
mainly upon Keynes' [activities] [3] in his negotiations in the
United States of America. The upshot of all our talks until the
last has been that pending a clarification of the results of
Keynes' mission in America it would be desirable that I should not
raise with Treasury here the question of our sterling balances.

In a conversation which I have just had with Eady, however, he
suggested that the time had now come when it would be a good thing
if I were to propose to the Chancellor that the informal
conversations which I have been carrying on with Eady should now
be taken up on a slightly more formal basis. Eady told me that
Treasury and the Bank of England have been discussing this matter
and that they desired to open the question of sterling balances
first with us with a view to ascertaining what the attitude of the
United Kingdom creditors on the subject was. The reason for this
desire, he told me, was that they thought the Australian field
would be the best one in which to explore the matter.

I asked Eady whether it meant that for the moment they were
leaving the question of how they were to deal with the
astronomical Indian and Middle East balances in abeyance. Eady
said that that was the position.

I told Eady that we were anxious to get on with the exploration of
the position and that I would be only too willing to open the
matter up on a more official basis than the talks we had had.

The upshot of our conversation was that it was agreed that I
should write a letter to the Chancellor of the Exchequer setting
out that I had had informal discussions with Eady with regard to
the problem of our sterling balances and that I thought the time
had now arrived when the matter might be taken up on a rather more
official basis but still confined to an exploratory survey without
commitments on either side. This action I am now taking. I will
keep you advised of developments.

Personal for the Treasurer.

Copland has now arrived in this country. Is it your wish that I
should keep him informed of the position and use him as a
consultant?

BRUCE