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further floating down of sterling. They also lost
some £20 million at devaluation in 1967.
8. In common with other members of the Overseas
Sterling Area, Hong Kong's sterling reserves are
covered by a Sterling Guarantee Agreement.
In
addition, the Hong Kong Government have an agreement
with certain banks in Hong Kong guaranteeing the
Hong Kong dollar value of sterling belonging to the
banks, which is held as part of the Hong Kong
Government's reserves. A serious problem arises
because the UK Sterling Guarantee comes into effect
when sterling drops below US$ 2.40, whilst the Hong
Kong Government's guarantee to the banks relates to
an exchange rate of US$ 2.60. The Hong Kong and
British Governments have made some progress in
alleviating the problem by permitting the banks
gradually to diversify some of their holdings out of
sterling without prejudice to the Sterling Guarantee
Agreement.
AID
But the musclying froblem remains.
9. In the past, we have given little aid to Hong
Kong, whose needs are rather different from our
Ministers have,
normal developmental criteria.
however, recently reconsidered this question and for
political reasons have agreed to provide £500,000 for
equipment and books for the new Hong Kong Polytechnic,
which is in addition to £400,000 agreed earlier for
similar aid to the new technical institutes.
/GENERAL