We have been informed in the strictest confidence that Mr. Macmillan, Chancellor of the Exchequer, has told Mr. Harris that the United Kingdom is approaching the U.S. Government to discuss the possibility of a waiver of interest payments due around the end of the year on the post-war loan.⁶² Since the waiver provision in our agreement with the United Kingdom is related to that in the U.S. agreement, Mr. Macmillan has enquired whether Mr. Harris would have any objection to the initiation of such discussions in Washington.

2. Mr. Macmillan apparently has also indicated that in announcing the figures for the sterling area's gold and dollar reserves early in December he might wish to mention the fact that consultations were taking place with the United States and Canada concerning the waiver.

3. In reply to Mr. Macmillan's question Mr. Harris proposes to state simply that he would have no objection to consultation taking place between the U.K. and U.S.. He will not go on to comment formally on the wisdom of including a reference to these consultations in the forthcoming gold and dollar reserve statement.

4. Although it may not be surprising that the United Kingdom is contemplating resort to the waiver, the fact that they may do so (and public knowledge of that fact) may have very serious political as well as financial repercussions - especially if, as seems not unlikely, the United States finds itself unable to agree that the waiver should come into operation.

5. Unfortunately, however, in present circumstances most outsiders, especially those who have been involved with the United Kingdom in recent exchanges over the Middle East, would probably be reluctant to attempt to advise the United Kingdom against the proposed course, particularly as they might not feel very confident about the prospects of their advice being welcomed or accepted.

6. The Department of Finance is considering the possibility of speaking privately on the telephone to Mr. Robertson to find out whether he would consider himself in a position to proffer advice to the Chancellor (or possibly preferably to Mr. Butler) and how he judges such counsel would be received. I have said that I thought it would be wise to talk with Mr. Robertson in these terms. In addition, Mr. Coyne is considering the feasibility of discussing the matter on the telephone with Mr. Cobbold, Governor of the Bank of England, since both of them could legitimately be concerned about the possible effects on exchange rates and neither of them has been involved in the recent unhappiness over the Middle East.

7. It seems all the more regrettable that the United Kingdom should be considering this action at this time - and the issuance of a public announcement about it - when we know that the U.S. Administration might well be prepared to adopt a pretty liberal view about sterling area drawings on the International Monetary Fund to tide them over their present difficulties. Such resort to the Fund would produce much more substantial relief or assistance for the United Kingdom and would have at least as salutary effects on confidence in sterling as would any public statement that the waiver was going to be invoked, with a consequential saving of something less than $180,000,000. It is of course true that even if the waiver were granted they might also be able to make the ordinary automatic drawing on the IMF, but it would not seem very likely that they would be allowed to draw the extra amount which senior U.S. officials have been discussing. On balance it would seem to be to their advantage to get as liberal treatment as possible from the Fund and not to take refuge in the waiver. (It is, of course, conceivable that their talk about a possible waiver is not meant too seriously but is merely part of the bargaining for drawings on the IMF. This seems rather unlikely, however, in view of the plans to make an announcement about the waiver as early as the first week in December.)

8. In view of the implications which this situation can have for U.K. relations with the U.S. - and Canada - you may wish to let the Minister know of these developments.

9. Since this is an extremely delicate matter it would seem desirable to put as little as possible on paper about it. Accordingly I am not having any copies made of this memorandum. You may wish to destroy this memorandum when you have finished with it.

A.E. RITCHIE