IMEDIATE CYPHER/CAT A
GPS 220
FM FCO 0214497
CONFIDENTIAL
ORWELL
DESKBY 0300 3ÓZ
CONFIDENTIAL
(FRD)
LA
HUCK's/1
63
TO IMMEDIATE GOVERNOR HONG KONG TEL NO 755 OF 2 AUGUST. 1973.
55
(62).
YOUR TELEGRAM NO 817 AND 849: STERLING AGREEMENT.
1. SINCE DECISIONS HAVE NOT YET BEEN TAKEN, WE CANNOT TELL YOU WHAT ARRANGEMENTS WILL FOLLOW THE STERLING AGREEMENTS. BUT YOU WILL HAVE REALISED FROM THE CHANCELLOR'S MESSAGE THAT NEITHER YOU NOR THE BANKS SHOULD ASSUME THAT NO ARRANGEMENTS WILL BE MADE IN RELATION TO OFFICIAL STERLING BALANCES AFTER 24 SEPTEMBER.
2. WE CANNOT ENDORSE ANY DIVERSIFICATION OF YOUR OWN OFFICIAL RESERVES OR ANY ENCOURAGEMENT TO THE COMMERCIAL BANKS TO DIVERSIFY OUT OF STERLING. WE MUST LOOK TO YOU FOR A BALANCED CONSIDERATION OF THE INTERESTS OF HONG KONG, THE UNITED KINGDOM AND THE OTHER SIGNATORIES OF THE STERLING AGREEMENTS AND IN THIS PERSPECTIVE TO SPEAK TO THE BANKS, IT WOULD CERTAINLY BE UNHELPFUL TO US ALL, INCLUDING HONG KONG, WERE ANY PRECIPITATE ACTION TO BE TAKEN, AND WE THINK YOU SHOULD SEEK EARNESTLY BY PERSUASION AND INFLUENCE
TO AVOID THIS.
3. TO THIS END IF (BUT ONLY IF) THE FINANCIAL SECRETARY CAN BE VIRTUALLY CERTAIN THAT BY DOING SO SUBSTANTIAL FORWARD SALES OF STERLING BY THE COMMERCIAL BANKS WOULD BE AVOIDED, WE ARE WILLING TO AUTHORISE THE WITHDRAWAL FROM THE EXCHANGE FUND BY THE COMMERCIAL BANKS OF A MAXIMUM OF £20 MILLION IN AUGUST 1973 AND 629 MILLION IN SEPTEMBER 1973, THESE SUMS TO BE DISTRIBUTED AMONG THE BANKS AS HE JUDGES BEST.
4. WE SHOULD BE GLAD TO TALK TO HADDON-CAVE IN LONDON AND SHOULD BE HAPPY TO SEE HIM AT ANY TIME. BUT WE THINK THAT THE BEST TIME FOR A VISIT MIGHT BE THE SECOND WEK IN SEPTEMBER.
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CONFIDENTIAL