NOTHING TO BE WRITTEN IN THIS MARGIN
SECRETARY OF STATE'S VISIT TO CHINA
DRAFT PASSAGE FOR STEERING BRIEF ON INTERNATIONAL
TRADE AND FINANCIAL QUESTIONS (FOR DEFENSIVE USE
ONLY)
(I)
THE FLOATING OF STERLING
Over the years the Chinese have earned a
sizeable surplus in their trade with Hong Kong and
have converted the Hong Kong dollar proceeds into sterling, which is in turn used to finance much of
China's trade with other countries. The UK's decision
initially
to float sterling gave rise to problems about the
correct rate of conversion from Hong Kong dollars
Although the Hong Kong authorities
into sterling.
have now opted for a fixed parity relationship between
the Hong Kong dollar and the US dollar, it is their
intention to declare a new fixed parity against
sterling once sterling has ceased to float.
Rams
This
should help to resolve any (difficulties that the
be
Chinese may have experiencing.
Defensive Points
(a) We understand that the Chinese and Hong
Kong authorities have already ironed out many of the
problems caused by floating.
(b) (If the Chinese ask when sterling will
revert to a fixed parity). We intend to return to
a fixed parity as soon as circumstances permit. (NB
The Chancellor of the Exchequer has said in the House
it of Commons that he hopes/will be possible to do so
/by
CONFIDENTIAL