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tactless, independent way which does not dispose the Treasury
towards the confidential "give-and-take" kindof exchange
which ideally should occur on the affairs of an important
dependent territory.
3.
I think there is nothing more we can do on this front
on Hong Kong's behalf until the Ministerial decision on the
future of the Agreements is taken. That stage should have
been reached by the time Sir Murray MacLehose comes into the
Office for talks on 11-14 September, and we can take matters
with him from there. If the decision is something that
Hong Kong can live with, all well and good. If not, so long
as Hong Kong and the Hong Kong banks were free to handle the
question of their own reserves in whatever way they pleased
there would be no disposition on Hong Kong's part to complain.
But if, as seems very likely, the Treasury sought to impose
unilateral restraints on the Hong Kong Government's ability
to diversify out of sterling or they were required to exercise
curbs on the Bankers' ability to do so, one can forecast
an explosion. If the Governor were instructed by you to
use his reserve powers to achieve this the resignation of
Unofficials would be virtually certain and the effect
calamitous. As we see it, what is essential is that the
final outcome should secure Hong Kong's acquiescence.
4.
And it is here that other current issues need to be
taken into account, having regard to the perennial suspicion
in Hong Kong that HMG is likely in the last resort always to
regard British interests as paramount and let Hong Kong down.
On nationality, we have in effect told the Governor that HMG
propose, for domestic reasons that are regarded as overriding,
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/to take