to prod the Hong Kong authorities if it appeared that they
were reluctant to impose controls or to apply them with
vigour. For this reason it is important that there
should be close contacts with the Hong Kong administration
and indeed early consultations with Hong Kong about the
action which might be needed to prevent capital flight.
4. Given adequate control in Hong Kong, it ought not to be
necessary to have to use U.K. powers because banks in the
U.K. would not be allowed, under the normal rules, to make
payments from Hong Kong sterling accounts to the non-
Scheduled Territories, unless they had evidence of Hong Kong
approval. However, if Hong Kong failed to exercise what
the U.K. considered to be an adequate control, U.K. powers
might have to be brought into use. For example, if it was
clear that a large volume of Hong Kong-owned sterling was
being transferred from the U.K. with the knowledge and
approval of the Hong Kong authorities, it would be necessary
to decide whether it was desirable to contain such
transfers, either wholly or selectively; and whether the
decision would be the same in respect of transfers to the
0.5.A. as for transfers to the N.S.A.
5. The two main considerations would be, first, the
effect on world wide confidence in sterling and, second,
the desirability of retaining, under U.K. control, assets belonging to residents of Hong Kong which might ultimately be used as a bargaining weapon in a settlement with a
Chinese occupying authority.
6. A similar problem could arise in respect of sterling balances belonging directly to China.
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