CONFIDENTIAL
was devalued by just over 14 per cent, Hong Kong has resented
this most recent loss; although, in response to any such
criticisms from Hong Kong, it might be pointed out that the
present dollar value of sterling is no lower than it was in
mid 1971 or indeed at the end of 1967.
to
Moreover because of Hong Kong's extreme dependence on
external trade, and particularly as far as imports of
commodities for local consumption are concerned on trade with
China, Hong Kong felt it necessary with UK concurrence
peg the Hong Kong dollar at least temporarily to the US dollar
in July of this year, rather than continuing to float with
sterling.
that,
The US dollar value of Hong Kong's official sterling
reserves is guaranteed at a rate of US$ 2.40. There is
however a further complication in the case of Hong Kong
which does not apply to other Sterling Area countries
because there is no Central Bank, her Government guaranteed
local banks in respect of the Hong Kong dollar value holdings
they were required to keep in sterling; and this will involve
the Hong Kong Government in substantial additional losses.
Discussions were held in Hong Kong in July in the
context of the general negotiations on the possibility of
concluding a new sterling agreement to carry forward, in a
slightly modified form, the present arrangements beyond the
expiry date of September 1973; and in September in London,
/when
CONFIDENTIAL