The Ambassador in the United Kingdom ( Douglas ) to the Secretary of State
2772. On May 12, I lunched with Dalton, Chancellor of the Exchequer. He discussed in general terms and at considerable length the British dollar position and the problem of sterling balances.
In regard to the dollar position he said that he was drawing down dollars against the line of credit more rapidly than was anticipated. This was due to a rise in our price level and the unanticipated slowness of European recovery and the winter crises. I told him that our calculations of British dollar position, based upon the assumptions on which the calculations were made, did not indicate a serious situation [Page 14] but that I would appreciate it if he would submit for my confidential information the Treasury estimate. This he agreed to do.
As to the settlement of the sterling balances, particularly Egypt and India, he asked for my informal opinion as to the application of the following principle; namely, that the difference between the sterling balances as they stood on V–J Day and as they stand now should represent the amount that should be recognized as a liability. Informally, I replied that in principle this might appear to be a valid approach but that before expressing a view it would be necessary to see the figures.
Yesterday I received a personal note from him in which he stated that at the present rate of drawing the dollar line of credit would be exhausted in the early part of next year but that he did not intend to refrain from taking every possible step to make the line of credit last for a much longer period. I suggested that Gunter discuss with the appropriate UK Treasury officials their estimates, together with ours to determine wherein the discrepancies lay, solely for the purpose of determining the facts and without discussing policy. This he thought a good idea. Clayton,1 with whom I talked on the telephone, approves the suggestion. Accordingly, Gunter will review the facts with Sir Wilfrid Eady.2 This is of interest to our Treasury Department and the Department of Commerce and possibly others.