SECRET
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substitute for it a guarantee to the banks on precisely the same terms
as those which may be available to the Government itself from H.M.G.,
i.c.
including the snake currencies' guarantee and a 21% trigger.
Furthermore, it would facilitate the overall operation if the Hong Kong
Government, although formally obliged under its present guarantee to pay
compensation in sterling, were to offer to discharge their liability by
the issue of local paper and in that way both avoid any further
depletion of the Government's sterling reserves and also initiate the
issue of local paper. Indeed, it is for consideration whether H.M.G, 's
possible guarantee should be made conditional on these two desiderata.
In any event it would be appropriate to use the 21% trigger which would
probably be negotiable particularly if a 100% guarantee of eligible
sterling balances were to be offered which again would tie in with
future plans for a generalised Agreement.
floating would be on the same lines as the arrangement already proposed
together with the principle of reverse payments which, however, might
meet with opposition.
Implementation under
Thus, taking account of the foregoing considerations, it would
that any special guarantee for Hong Kong should be based on the
snake currencies at the market rate on 25th September subject to a
21% trigger, should apply to 100% of eligible balances and contain
provisions to cover implementation under floating, together with
reverse payments. It should also lead to the substitution by the
Hong Kong Government of its current Hong Kong dollar guarantee by a
snake currency guarantee and ideally the discharge of its
under the old guarantee by the issue of local paper.
obligations
As to the issue by the Hong Kong Government of local paper to
the banks against part of the latter's excess foreign exchange holdings,
there are
some important questions to be taken into account in this
area also:-