245. Telegram From the Embassy in the United Kingdom to the Department of State1

2815. For the Acting Secretary and the Secretary of the Treasury from the Ambassador. Eugene Black today saw Macmillan and Cob-bold2 and reports as follows.

Macmillan told him November balance of payments figures would be very bad. He said October losses were “as nothing” compared to November. This left Macmillan facing a most difficult choice. He could announce figures Dec. 3rd and let events take their course in which event sterling would depreciate substantially and Britain would take her place alongside Holland and other small countries. Alternatively, he could announce figures Dec. 3rd and take stronger line that UK had reserves which it was going to use to support the rate, e.g. [International] Monetary Fund and borrowing against government-held U.S. securities.

He realized, however, that he could not possibly make the necessary arrangements to use these reserves within 10 days and that he could not secure the necessary US agreement until British troops were out of Egypt. Therefore, the best he could say if he followed the stronger line was that the UK had these reserves which it was prepared to use as soon as the necessary arrangements could be made.

He asked Black’s advice as to which course he should follow. Macmillan indicated that [he] somewhat favored trying to hold the line. Black said he was also inclined to feel this would be right.

Black emphasized that request for waiver on U.S. loan3 would accentuate bad impression made by November figures. Macmillan appeared to agree. As indicative of doubts about sterling, Black cited reports that Indians are trying to prepay full purchase price for steel mill they have ordered from Germany.

[Page 667]

Macmillan expressed the greatest eagerness to talk to Secretary Humphrey but he realized it would be inadvisable for him to go to Washington. He hoped very much Secretary Humphrey would come to the December NATO Ministers meeting.4

[4 paragraphs (1 page of source text) not declassified]

Aldrich
  1. Source: Department of State, Central Files, 841.10/11–1956. Top Secret; Limit Distribution.
  2. Cameron Cobbold, Governor of the Bank of England.
  3. Reference is to the Financial Agreement between the Governments of the United States and the United Kingdom, signed at Washington, December 6, 1945; for text, see TIAS 1545, or 60 Stat. (pt. 2) 1841. Section 6(iii)(c) of the agreement permitted the United Kingdom to claim the waiver of the interest due on the installment payable in any year, if certain conditions were met. There were differences of opinion on the interpretation of these conditions. On December 4, 1956, the United Kingdom claimed the waiver of interest in respect of the installment due on December 31, 1956. On March 6, 1957, an agreement was signed amending the 1945 agreement to defer the 1956 interest and redefine the “conditions.” Congress approved this new agreement on April 20, 1957. Documentation on this subject is in Department of State, Central File 841.10.
  4. The North Atlantic Council held its 18th Ministerial session in Paris, December 11–14, 1956.