Cablegram[2824] [1] LONDON, 12 August 1947

MOST IMMEDIATE TOP SECRET TO BE DECODED BY A SPECIAL OFFICER

1. Your 3322 [2] and my ... [3] Had long confidential talk to
Eady. He is going to Washington on Friday with U.K. Mission to
discuss crisis which has sharpened recently. You may expect
telegram from British Government in next few days advising you of
Mission and its purpose.

2. Main purpose will be to discuss steps which U.K. will be forced
to [take in view of exhaustion of loan] [4] about end of October
and to seek U.S. agreement. I gather these steps will involve
elasticity in interpretation of convertibility and
nondiscrimination clauses of Loan Agreement in order to reduce
present drain on dollars and reserves.

3. Although Paris talks are progressing I am of opinion Marshall
Plan, if it does come into being, cannot bring European relief
until about April. The gap would be aided somewhat if the Monetary
Fund in September [in view of world shortage of dollars] approved
drawings up to, say, [50%] [5], but that would be only a
palliative. It may, however, be tried out.

4. I gave Eady the Australian amendments to the draft letter. His
immediate reaction to the letter as a whole was that in view of
recent developments and the outlook, it would be unfair to
Australia to send this letter now when the circumstances will
probably compel U.K. to address a further request in a few weeks.

We discussed whether, in view of the effort put into the letter,
it might go as an expression of the way U.K.'s mind was working a
few weeks ago and your acceptance would be regarded as a handsome
action on your part, but that I should follow up with a personal
note to you explaining the latest developments and the probability
of a further request in a few weeks which may ask us to live
within our dollar earnings during the succeeding six months or so,
pending developments.

I rather favoured this course and Eady agreed.

5. I left your amendments with Eady and he has just informed me he
is sending the draft as altered by you to the Chancellor for his
consideration. I presume you would still prefer to have the letter
even in the new circumstances which will probably require some
qualifications later, especially on dollars.

6. I suggest you await the cablegram from U.K. Government on the
Mission and also postpone submission to Cabinet of draft Attlee
letter until it has been considered here on Government level and
approved.

7. Re your 3350 [6], Eady greatly appreciated proposed action to
conserve dollars and stated that it would not have prejudicial
effect upon talks. On contrary, it might help in forcing a
realisation of the position on U.S.A. Eady asked whether we would
break even on dollars this year. I was unable to give any advice
as so much depended on wool. Regarding Eady's indication that we
may later be asked to live within our dollar earnings, I explained
that any import restrictions take six months to operate. My advice
is that for the present dollar imports should be restricted as you
now propose, but any dramatic action such as cancellation of
licences, should await outcome of Washington talks.

8. Eady has emphasised need for secrecy until results of talk are
known. I have sent this cable to give you quick indication of
position and am writing more fully.

9. As to my movements, I now feel it would be wise to fly to
Washington next week so as to learn result of Washington talks
(expected to last one week) which I will send you and then
endeavour expedite my return to Australia.