J
TORITY
CYPHER/CAT A
FM HONG KONG 038700Z
RESTRICTED
ORWELL
RESTRICTED
TO PRIORITY FCO TELNO 691 OF 3 AUGUST.
STERLING AGREEMENTS: HONG KONG,
418
(81)
TOP COAT
RECEIVED IN RECLAN 5.47
- 4 AUG 1972
MF 9/39311
IN REPLY TO THE FOLLOWING QUESTION IN LEGISLATIVE COUNCIL TODAY:
QUOTE HAS THE GOVERNMENT ANY STATEMENT TO MAKE REGARDING THE NEGOTIATION OF HONG KONG'S STERLING GUARANTEE ARRANGEMENT WITH THE U.K.? UNQUOTE.
THE FINANCIAL SECRETARY REPLIED AS FOLLOWS:
QUOTE SIR HONG KONG'S STERLING GUARANTEE AGREEMENT WITH THE UNITED KINGDOM WAS NEGOTIATED IN 1968 AND RUNS FOR FIVE YEARS UNTIL 24 SEPTEMBER 1973. IT GUARANTEES THE U.S. DOLLAR VALUE OF ABOUT 90 PER CENT OF HONG KONG'S OFFICIALLY HELD STERLING RESERVES AT AN EXCHANGE RATE OF POUNDS STERLING 1 EQUALS U.S. DOLLARS 2.40. THAT IS TO SAY, IF STERLING FALLS BELOW THIS RATE BY MORE THAN 1 PER CENT FOR A CONTINUOUS PERIOD OF 33 DAYS, THE BRITISH GOVERNMENT WILL PAY TO THE HONG KONG GOVERNMENT SUFFICIENT STERLING TO RESTORE THE U.S. DOLLAR VALUE OF THE GUARANTEED PROPORTION OF OUR STERLING RESERVES.
2. THE FLOATING OF STERLING AND THE SUBSEQUENT ESTABLISHMENT OF A TEMPORARY LINK BETWEEN THE HONG KONG DOLLAR AND THE U.S. DOLLAR HAS CREATED TWO DIFFICULTIES FOR HONG KONG IN RELATION TO THE STERLING GUARANTEE AGREEMENT. THE FIRST, WHICH IS PURELY TECHNICAL, IS THAT THE AGREEMENT NEEDS TO BE REINTERPRETED WITH REGARD TO ITS APPLICABILITY IN A SITUATION WHERE STERLING IS FLOATING RATHER THAN BEING ALIGNED ON A NEW FIXED RATE IN RELATION TO THE U.S.
DOLLAR.
RESTRICTED
/3.THE