GPS 450 IMMEDIATE
CYPHER/CAT A
FM HONG KONG 021105Z
SECRET [ORWELL]
SECRET
RESPET
TO IMMEDIATE FCO TELNO 854 OF 2 AUGUST. 1973
PERSONAL FOR THE SECRETARY OF STATE FROM GOVERNOR.
I AM BECOMING THOROUGHLY WORRIED ABOUT THE WAY THINGS ARE
DRIFTING OVER THE STERLING AGREEMENTS, THOUGH WE HAVE GIVEN AMPLE
WARNING I AM NOT SURE IF IT IS REALISED THAT IF WE DO NOT RECEIVE
CONCRETE PROPOSALS ABOUT THE AGREEMENTS WITHIN ABOUT A WEEK,
AT THE LATEST:-
A) THE HONG KONG GOVERNMENT WILL BE OBLIGED TO START SELLING FORWARD WITH A VIEW TO DIVERSIFYING. THE EVENTUAL TARGET WOULD BE TO HAVE
50 PER CENT OF THE GOVERNMENT'S OWN RESERVES IN STERLING. IF WE WERE
ABLE TO ACHIEVE THIS THE SUM INVOLVED IN THE SWITCH WOULD BE IN THE
ORDER OF POUNDS STERLING 200 M.
THE BANKS WOULD DO THE SAME FOR A RATHER SMALLER AMOUNT:
C) ON 25 SEPTEMBER THE HONG KONG GOVERNMENT WILL PAY THE BANK APPROXIMATELY POUNDS STERLING 50 M. COMPENSATION UNDER OUR GUARANTEE SCHEME. THIS TOO WILL BE DIVERSIFIED OUT OF STERLING.
2. I TRUST IT IS ALSO APPRECIATED THAT THE STERLING [GRP UNDEC]
BECOMES VIRTUALLY INOPERATIVE AS FROM 26 AUGUST BECAUSE OF THE 30 DAY RULE AND CANNOT BE INVOKED ANYWAY UNTIL STERLING FALLS WELL
BELOW DOLLARS 2.4.
3. WE HAVE HELD ON OUT OF LOYALTY AND IN THE EXPECTATION OF DEFINITE PROPOSALS FROM HMG, AND REQUIRED THE BANK TO DO SO TOO.
BECAUSE THE GUARANTEE ITSELF IS NOW OF SO LITTLE VALUE WE HAVE LONG PASSED THE POINT OF COMMERCIAL PRUDENCE.
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