CONFIDENTIAL
F.C.O. TELEGRAM NO. 330 TO HONG KONG
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7. THERE IS ONE MORE POINT WHICH ALSO ARISES FROM OUR GENERAL CONCERN TO INSTITUTE EFFECTIVE CONTROLS. THIS RELATES TO THE MACHINERY FOR REPORTING, BOTH TO YOU AND TO US, BY THE COMMERCIAL BANKS OF THE BALANCES OF OFFICIAL STERLING WHICH THEY HOLD UNDER THE ARRANGEMENTS. AS IS LAID DOWN IN PARAGRAPH 8 OF THE SECRET DESPATCH OF 29 SEPTEMBER LAST YEAR, THE BANK OF ENGLAND NEEDS TO RECEIVE EACH MONTH A STATEMENT FROM EACH BANK IN HONG KONG HOLDING A DEPOSIT OF OFFICIAL STERLING, AS IS ALSO THE CASE WITH BANKS IN LONDON HOLDING SUCH DEPOSITS. I SEE THAT IN YOUR LETTER OF 29 JANUARY YOU DO NOT APPEAR TO HAVE REQUIRED SUCH ADVICES. ALTHOUGH WE UNDERSTAND THAT THE BANK OF ENGLAND ARE RECEIVING THESE ADVICES FROM MOST OF THE HONG KONG BANKS, WE THINK THAT THERE WOULD BE ADVANTAGE IN MAKING EXPLICIT THEIR OBLIGATION TO SUBMIT ADVICES.
8. MORE IMPORTANT, IN THE EVENT OF IMPLEMENTATION, AND PERHAPS AT OTHER TIMES AS A CHECK ON THE SYSTEM, THE BANK OF ENGLAND WILL. REQUIRE EVIDENCE, NOT ONLY FROM BANKS IN HONG KONG OF THE AMOUNTS OF THEIR STERLING LIABILITIES TO THE EXCHANGE FUND, BUT ALSO FROM THE LONDON CORRESPONDENTS OF THESE BANKS TO THE EFFECT THAT THEY HOLD AT LEAST THE SAME AMOUNT OF STERLING. IT SEEMS TO ME THAT YOU COULD REQUIRE THIS INFORMATION TO BE PROVIDED TO US UNDER PARAGRAPH 4(5) OF YOUR LETTER.
9. ALL THIS IMPLIES, OF COURSE, THAT EACH BANK MUST KEEP PROPER ACCOUNTING RECORDS OF THE STERLING DEPOSITED WITH IT BY THE GOVERNMENT, AND WE ASSUME THAT THIS IS BEING DONE.
10. I SHOULD BE GRATEFUL IF YOU WOULD CONSIDER THESE POINTS AND LET ME HAVE YOUR COMMENTS ON THEM IN DUE COURSE.
STEWART
FILES F.P.A.D.
H.K. DEPT.
AAAAA
[COPIES SENT TO BANK OF ENGLAND FOR MR TURNER
AND H.M. TREASURY FOR MR HAY.
CONFIDENTIAL