CONFIDENTIAL
!
3.
TO QUOTE DIRECTLY FROM A LETTER DATED 23RD JULY 1973 FROM TH
HONG KONG BANK:
''WE WERE GRANTED PERMISSION IN JANUARY TO DIVERSIFY POUNDS
STERLING 100 MILLION INTO OTHER FOREIGN CURRENCY ASSETS ON THE
CONDITIONS LAID DOWN IN THE FINANCIAL SECRETARY'S CONFIDENTIAL LETTER TO OUR CHAIRMAN DATED 29TH DECEMBER, 1972. BETWEEN 1ST JANUARY AND 31ST MAY OUR TOTAL SALES OF STERLING TO THE BANK
OF CHINA OF POUNDS 219 MILLION EXCEEDED OUR INTERBANK PURCHASES
BY POUNDS. 82 MILLION, DURING THE SAME PERIOD WE WERE OBLIGED
TO ENCASH DEBT CERTIFICATES TO THE EXTENT OF POUNDS STERLING 112 MILLION TO COVER SALES TO THE BANK OF CHINA AND OTHER OUTFLOWS OF FOREIGN CURRENCY FROM THE COLONY, OUR DIVERSIFIATION INTO OTHER
FOREIGN CURRENCY ASSETS TOTALLED ONLY POUNDS 18 MILLION.''
THE FINANCIAL SECRETARY'S LETTER OF 29TH DECEMBER 1972 REFERRED
TO WAS COPIED TO BELL AND YOUR PARTICULAR ATTENTION IS DRAWN TO PARAGRAPH 10 WHICH, FOR EASE OF REFERENCE, I QUOTE BELOW:
3. ''I SHOULD ADD THAT I REGARD THE ARRANGEMENTS SET OUT IN MY
LETTER OF THE 25TH AUGUST 1972 AS TERMINATED AND SUPERSEDED BY
THIS LETTER. I WOULD HOPE THAT THE STERLING AVAILABLE TO YOU
UNDER THIS NEW ARRANGEMENT WILL BE SUFFICIENT BOTH TO ENABLE YOU
TO DIVERSIFY YOUR ASSETS AND TO SUPPLY THE MARKET WITH SUFFICIENT
STERLING TO MAINTAIN A REASONABLE AND ORDERLY FOREIGN EXCHANGE
MARKET. SHOULD THIS NOT PROVE TO BE THE CASE, I NATURALLY
STAND READY TO DISCUSS THE POSITION WITH YOU INTHE LIGHT OF ALL
THE CIRCUMSTANCES AT THE TIME.
IN OTHER WORDS, THE RUNNING TOGETHER OF THE TWO FACILITIES FROM
1ST JANUARY WAS PURELY A MATTER OF ADMINISTRATIVE CONVENIENCE.
WHEN BLYE TOLD PAYTON THAT POUNDS 90 MILLION HAD BEEN TAKEN OUT OF
THE SCHEME TO SUPPLY THE BANK OF CHINA AGAINST HONG KONG DOLLARS,
WAS WAS IN FACT SAYING THAT THE BULK OF THE FACILITY HAD YET TO BE
UTILISED FOR DIVERSIFICATION PURPOSES (1.E. THE SALE OF STERLING FOR FOREIGN CURRENCIES).
"
/4. OF THE
-2- CONFIDENTIAL