COLFADENIAL
32
R&PA Staling
Zile
E.PAAN.
18
9th June 1969
ce Hong Kong best. No. Steven
You wrote to David Hancock on 30th May asking whether the Treasury had any comment on Hong Kong telegram No.409 of 20th May which reported that the Hong Kong and Shanghai Bank had decided to suspend further forward purchases of sterling against export contracts, and in particular whether this problem was in any way affected by "funk money" from Britain,
To complete the story started in this telegram, I should add that the Exchange Banks' Association in Hong Kong followed the lead of the Hong Kong and Shanghai Bank, and decided to suspend all forward purchases of sterling and other currencies. In their statement, they made it clear that this was because they were no longer able to maintain reasonably balanced forward positions, and were not prepared to take the exchange risk involved in unbalanced positions.
In
The question of whether or not to operate a forward market is entirely one for the authorities and banks of each country. Such forward markets exist only in relatively few overseas sterling area countries, Hong Kong, where there is no central bank, the decision rests entirely on the commercial banks themselves. Given the relative strength of the Hong Kong dollar in relation to sterling at the 1967 devaluation Hong Kong devalued against the dollar by only 5.7 per cent. and has since enjoyed a remarkable export-led boom - one would expect Hong Kong exporters to wish to sell sterling securing to
/them forward
/vi
J
E. Youde, Esq.
CONFIDENTIAL
RECEIVED IN REGISTRY NA 14
11 JUN 1969
HICK 5/6