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been agreed that the Commission will look at the sterling balances, and their implications for us joining the "snake". I attach a copy of a factual paper which the UK members of the EEC Monetary Committee have circulated to their colleagues. The Commission's report is due at the end of June. It is not impossible that agreement might swiftly be reached on arrange- ments for our re-entry into the joint float, in which case we might be able to begin negotiations with Sterling Agreement countries with the advantage of a clear commitment by our EEC partners to guarantee official holdings of sterling and to su port diversification out of sterling by official (and private) holders. On the other hand, if an early agreement on the arrangements for re-entry is not possible, one course of action might be to suggest that the Sterling Agreements be extended for say 12 months to give us time to work out what should follow them and to consult both our Sterling Area and Community partners.
4. It is against this background that we shall be considering what to do. It may be that since official balances are no longer the most significant nor the most unstable of the sterling balances, we need no longer make such elaborate arrangements to stabilise them. At the other extreme, the European discussion of the problem of the sterling balances could conceivably lead to agreement on some kind of mutual support arrangements which would allow us to participate in the European joint float; in which case arrangements to guard against an outflow of official balanc es would merely be one part of more general arrangements to deal with current and capital account outflows. But should neither of these come about we might well wish/to provide terms so attractive that the balances were significantly increased; nor, on the other hand, would we wish to provoke large-scale movements out of sterling.
The issues surrounding the possible options are complicated. But in essence there are three courses open to us:
5.
6.
i.
ii.
to let the Agreements lapse;
to seek to renegotiate the Agreements for a further period, say two years;
iii. to seek an extension of the existing Agreements for a
period of, say, a year, in the hope that the situation internationally and in Europe will have become clearer by then. We might propose - or accept minor modifica-
tions.
As regards i., there are obvious risks to "pulling the plug out" of both an economic and a political character. But for the reasons set out above, there are also arguments in favour of not
*
/seeking
to stabilise the situation, by means of Sterling Agreements on something like the present lines. However, we would not
wish
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