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]