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SSIBLE HONG KONG GOVERNMENT REACTION TO THE ENDING OF THE
STERLING AGREEMENTS
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1. This paper presupposes that if the Sterling Agreements are
not renewed Hong Kong will be treated no less favourably than
other holders of sterling.
In particular this means that
Hong Kong must not be discriminated against over the
In signing a
diversification of her sterling balances. Sterling Agreement with Hong Kong, HMG have put her on the same level as the independent holders and it would be politically very damaging were restrictions to be placed on Hong Kong movements out of sterling when the Agreement ends
Were this to (unless some quid pro quo were negotiated).
happen, we could expect an extremely bitter reaction from Hong Kong and our position would be very difficult to justify. 2. It seems much more likely, however, that the Treasury, whilst not welcoming full diversification, would not prevent it. Before the Sterling Agreements were signed, Hong Kong, as one of the Scheduled Territories, was prevented from removing her reserves except with UK Exchange Control permission. The descheduling of the Overseas Sterling Area (except the Republic of Ireland and, later, Gibraltar) in June ̧ 1972 has removed this control. In any case, a rapid run-down of her sterling holdings would be against Hong Kong's own best interests as the releasing of large quantities of sterling would reduce their value. Furthermore, there is in practice nowhere apart from the US dollar market where her large assets.
Interest rates in London are appreciably higher than
can go.
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