CONFIDENTIAL
4.
In
If
There was no evidence to suggest an inflow of "hot money".
proportionate terms, the largest increase in the commercial banks'
terling assets had occurred in savings deposits, not a form of deposit
suitable for such inflows. To some extent also there had been
repatriation of sterling funds by Hong Kong residents. The
unauthorised banks had also shown some willingness to switch part of
their United States dollar balances into sterling. In any event, the
guarantee arrangements could not attract non-resident funds because a
non-resident making a deposit with a Hong Kong bank did not obtain a
guarantee on his deposit, since the sterling had to be sold to the bank
for local currency; he gained only a deposit in a strong currency.
there was an inflow of funds it was due to the success of the
Hong Kong economy and not to the guarantee. And the effect of any such
inflow should it occur could not be to increase the United Kingdom's
guarantee liability, since any funds attracted to Hong Kong could have
been brought within the scope of the United Kingdom's guarantee in any
OSA country by being sold to the local central bank.
United Kingdom reserves should in fact benefit by a flow of sterling
from another OSA country to Hong Kong, since Hong Kong's MSP meant that,
in contrast to most other OSA countries, virtually no part of any
capital inflow could be diversified. The only area where a problem
could well exist would be in investments of funds to Hong Kong by
United Kingdom residents. If the United Kingdom was concerned to
prevent such a movement of funds and there was no evidence at the
moment that it was taking place they might contemplate the
imposition of exchange controls on movements of capital to Hong Kong.
3
CONFIDENTIAL
Indeed the