SECRET
APPENDIX
The 1968 Hong Kong Dollar Bond Arrangement
Attached is a copy of the Commonwealth Office letter
(FP9/551/4) of 30th May 1968 to the Governor of Hong Kong which sets out
the agreed arrangements in detail.
They may be summarised as follows:-
Bonds to be issued for up to 50% of official external reserves
subject to a limit of £150 min. Facility to last seven years
from 30.5.68.
H.M.G. to issue 7-year non-negotiable Hong Kong dollar bonds,
minimum value H.K.$100 mm. each, to the Hong Kong Government
against sterling.
Interest 3/8% p.a. below current rate for National Loans Fund
loans of like length (i.e. below H.M.G.'s borrowing rate),
less penalty deductions in case of early redemptions.
Premature redemption to be allowed without consultation should
the Hong Kong Government need funds for liquidity reasons, or,
inter alia, by mutual agreement.
Interest and principal payable either in Hong Kong dollars -
which the Hong Kong Government agreed to sell to H.M.G. against
sterling or at the Hong Kong Government's option in sterling.
All transactions to be based on I.M.F. parities for sterling and
the Hong Kong dollar prevailing at time of transaction.
The Governor of Hong Kong agreed not to seek unilateral
appreciation of the Hong Kong dollar.
In the event the Hong Kong Government bought nine H.K.$100 mm. bonds
(£62 mn.) on 17.6.68. They were redeemed for sterling on 25.9.68 when
the Sterling Agreement came into force. The possibility of bringing a
proportion of commercial bank sterling under the "official" umbrella
but without conclusion
for purposes of the Bond Scheme was discussed
by September 1968.