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banks, and to lay claim to the balances of the Hong Kong
This latter claim would no doubt be the
•
Government.
subject of legal disputation. The net total of private
holdings is some £130 million, and of official holdings
over £200 million.
of
and
8. Having taken control over the dispositions/these
balances the Chinese would probably seek to transfer them
to the account of the Chinese Government in third
countries, and probably to convert them into other
currencies. The purpose would be to assure effective use
of the assets by forestalling any blocking by H.M.G.;
also perhaps to embarrass H.M.G. by the resulting pressure
on sterling. While not least because of the scale of the
sums in question, conversion into other currencies would
involve considerable problems (especially since the
Chinese would presumably not wish to convert into U.S.
dollars), we must nevertheless plan on the assumption that
the conversion would be attempted.
9. The counter-action to stop this is for H.M.G.
immediately to block all Hong Kong sterling balances.
As
is well known, blocking is a grave step, which must always
carry risks to the confidence of other holders of sterling
balances. But in the circumstances here envisaged, other sterling holders would probably regard it as necessary and justified by a situation analogous to a state of war and
created by an act of violent aggression. The risk to the
stability of other sterling balances, and consequent
pressure on sterling, may therefore be ignored. (This is
not to say that the political situation envisaged would
1
not for other reasons bring presure on sterling.)
10. The balances could be blocked within 24 hours by administrative action under an existing Order which is
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