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limiting the very large amounts of sterling at the disposal of the
Hong Kong banks which came within the United Kingdom's ŋuarantee. This should remove the major anomaly in the present arrangements,
thereby enabling the United Kingdom more readily to meet demands for
extension from other 0.8.A. countries and reconcile their action
with the general purpose of the sterling agreements as put to
Parliament. 8ince it was an essential part of the proposals that the
United Kingdom should relax its control on the amount of sterling taken
in by the Exchange Fund, Hong Kong would then have the full freedom
enjoyed by other 0.5.A. countries.
7.
In reply, Sir J. Cowperthwaite said that he did not see that these
proposals would reduce the factors about which the United Kingdom had
first expressed concern. This ability to accept the proposals would
depend upon the co-operation of the three or four major banks in
Hong Kong with whom he would need to discuss the matter. The proposals
should be technically feasible as the Hong Kong authorities already had
the necessary powers to recall sterling redeposited with the commercial
banks on terms to be decided. They had the advantage of avoiding the
need for the Hong Kong authorities to explain publicly the difficulties
which had given rise to the present situation. In further discussion,
Sir J. Cowperthwaite made it plain that any limit agreed to would be
given effect by taking back funds only from the main commercial banks;
the arrangements as already worked out would continue to apply to the
smaller participating banks. He suggested that the funds taken in
might be managed on the instructions of the banks, and that budgetary
surpluses expressed in sterling could be excluded from the limit.
United Kingdom side agreed that the application of the agreed limit
would be a matter for the Hong Kong Government, but that as our
concern was in part presentational we would have to take account of
such matters. We would also need to discuss what proportion of the
funds guaranteed would be re-deposited with the commercial banks - a
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