Prime Minister                       
 
                                                            
 
 
There is a matter affecting our financial relations with the 
      United States of America which I think I must bring prominently 
      to your notice at this particular juncture. We have reason to 
      believe that the President is about to give a decision which 
      is of absolutely vital importance to our financial capacity to 
      get through the transitional period and, indeed, to our diplomatic 
                  independence during that time.            
 
      We are all concerned by the tabulating accumulations of sterling 
      balances in he hands of other countries. These represent a post-War 
      liability upon us to convert the sterling into gold or other 
   foreign exchange which the holders of the balances may ne
 
                                                            
 
 
It looks indeed as though we may come to the end of the war 
      with external liabilities of not less than $2,500,000,O00 (ten 
                        billion dollars).                   
 
                                                            
 
 
On the other side, after being almost cleaned out by the middle 
      of -1941, we have been gradually building up a modest reserve. 
      Our free balances of gold and dollars have now reached $300,000,000, 
      and there is a reasonaoie hope of their reaching $500,000,000 
      (two billion dollars) by the end of the war, or about one-fifth 
      of our assumed liabilities at the same date. These balances represent 
      our only quick assets against the liabilities and constitute 
      in fact the central reserve of the whole Common weaith, since 
      they include dollars turned over to us under the sterling area 
      arrangements by the Dominions and other countries in the sterling 
                              area.                         
 
                                                            
 
 
These balances will be absolutely essential to see us through 
      the difficult transition period after Lend/Lease has ceased, 
      and before the measures