Dd. 32855 Ed (4200)
NOTHING TO BE WRITTEN IN THIS MARGIN
However, if absolutely watertight financial
safeguards can be devised between the Treasury
and Hong Kong to ensure that the Sterling
acquired from the banks for Hong Kong Government
reserves comes properly within the scope of the
The
guarantee there would remain only e constitutional
unight
problem and this may not be insuperable.
7. At present the safeguards used by the Hong
Kong Government to prevent the intake of Sterling
into the reserves which originates outside Hong
Kong are not entirely satisfactory. One diffi-
culty arises from the fact that the Hong Kong
Government has offered the protection of the
guarantee not only to the three authorised banks
but to others including the Communist banks
(although the present indications are that the
latter will not take the offer up, being sus-
picious of its purpose): unfortunately during
the Sterling negotiations no clear distinction
was drawn between the commercial banks. Another
problem is that the machinery set up by the Hong
Kong Government to ensure that the commercial
banks report the balances of official Sterling
which they hold under the arrangements is inade-
quate. Some of the banks are not reporting
regularly and the Treasury take the view that
not only should the banks report to the Government
in Hong Kong but that their London branches should
also report to the Bank of England.
8.
In the mean time the Hong Kong Government
has borrowed for the Exchange Fund HK$2,992 million (as at 16 May) against the statutory
limit of HK$3,000 million.
It seems that the
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