Through this instrument the Hong Kong Government could
buy Sterling from the commercial banks and give them in
return Hong Kong dollar assets, the Sterling then being
held by the Government.
4.
Unfortunately no actual limit was set on the amount
of Sterling which might be bought from the commercial
banks. But it is nevertheless important to maintain one
Otherwise there would be a danger that the Sterling
holdings of the commercial banks might be swollen by
deposits made freely with them by residents of other
OSA countries including the UK. The Hong Kong Governmen
might then take in these increased deposits under the
ранно cover of the guarantee thus protecting private résidents
against a further Sterling devaluation.
5. The only control which we can exercise over the
Hong Kong Government is through the statutory limit on
their powers to borrow for the Exchange Fund.
bor
The
Exchange Fund ordinance
These
are fixed by Hong Kong legislation which under Royal
A
A
Instructions cannot be amended without HMG's approval.
6.
After the conclusion of the Sterling Agreement
Hong Kong asked for permission to increase the borrowing
limits of the Exchange Fund. This was agreed and after
the former cailure of
a further request the limit was raised to, HK$3,000 mil-
lion (about £200 million). At the same time Hong Kong alco
asked for permission to make further amendments by
resolution of legislative council to avoid the delays
involved in the normal legislative procedures. It is an unlucky to be
NOTHING TO BE WRITTEN IN THIS MARGIN
hut
within by
No dicision has been reached in the request
This
not beer agreed for the two reasons that such a loss
of control would probably be constitutionally unaccep-
table and also because in the absence of any other form
of control the Treasury would be unable to limit the
extent of HMG's liability under the Sterling guarantees.
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