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Hong Kong sterling holdings in the U.K.
5. If the Chinese occupy Hong Kong, they must be expected to try
to assume control over the disposition of assets, whether domestic
or foreign, belonging to residents of Hong Kong who are unable to
escape, which would include banks, and to lay claim to the balances
of the Hong Kong Government. This latter claim would no doubt be
the subject of legal disputation. The net total of private holdings
is some £130 million, and of official holdings over £200 million.
6. Having taken control over the dispositions of 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 ensure effective
use of the assets by forestalling any blocking by H.M.G.: and also
perhaps to embarrass H.M.G. by bringing pressure on sterling. 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.
7. The counter-action to stop this would be 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 analagous to
a state of war and created by an act of violent aggression. The
risk to the stability of other sterling balances, and to consequent
pressure on sterling, may therefore be ignored. (This is not to say
that the political situation envisaged would not for other reasons
cause pressure on sterling.) He would not of course le ave the
world to form its own judgment about the effect on sterling:
should have to present the case with the greatest care at the time
we brought blocking arrangements into force.
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