CONFIDENTIAL
ANNEX A
NOTE ON FINANCIAL DISCUSSIONS WITH HONG KONG
One of the main purposes of the Governor's visit to
London is to hold discussions on the consequences of devaluation
for Hong Kong. Discussions opened on
Discussions opened on Wednesday, 1 May and are
contiming.
2. When sterling was devalued Hong Kong first devalued to
the amme extent but a few days later undertook a partial re-
valuation, the net outcome being that their parity was lowered
5.7% as against sterling's 14.3%. To have devalued in line
with sterling would have meant sharply increased costs in a
community heavily dependent on imported foodstuffa and rew
materials; the resultant discontent, fanned by communist
propaganda, could well have produced serious civil disorder.
3. The Hong Kong Government estimates that sterling devaluation
oost the Colony £50 million, €30 million being the lose in
value to the official reserves; this has greatly reduced the
funds available for nuch needed development, particularly of
the social services. They have asked for certain guarantees
and the right to diversify a proportion of their sterling
assats in order to safeguard their position in the event of a
further devaluation of sterling.
*
it is recognised that there are strong political, if not
financial, reasons to reach some accommodation with them. The
Governor her provisionally accepted a formula which provides «
form of guarentes for 50% of the official reserves (subject to
/a ceiling
NFIDENT IAL