CONFIDENTIAL
IMMEDIATE CYPHER CAT A
GR... 290
FM FCO 251753Z
CONFIDENTIAL
ORWELL
DESK BY 260230Z
13T
RLF.
146
(FRD)
TO IMMEDIATE GOVERNOR HONG KONG TELNO 726 OF 25 JULY 1973.
MY TELNO 675 AND YOUR TELNO 761.
STERLING AGREEMENT.
1. WE NOTE THAT YOU WILL RESTORE MSP AS SOON AS POSSIBLE AND NO LATER THAN 31 AUGUST. OUR POSITION REMAINS AS OUTLINED IN PARAGRAPHS 1 AND 2 OF MY TEL NO 675. WE APPRECIATE THAT TECHNICAL FACTORS MAY MEAN TEMPORARY AND UNAVOIDABLE ALTERATIONS IN THE PROPORTION WHICH STERLING
REPRESENTS IN YOUR RESERVES AND WE ARE PREPARED TO LOOK AT SUCH EVENTS IN RETROSPECT PROVIDING THAT THE END-MONTH POSITION IS CORRECT
2. WE CANNOT ACCEPT THAT ANY STERLING PURCHASED IN ORDER TO RESTORE AND MAINTAIN YOUR MSP SHOULD BE GUARANTEED AT THE RATE ON THE DATE OF
PURCHASE.
3. WE DO NOT UNDERSTAND THE REFERENCE IN PARAGRAPH 5 OF YOUR TEL NO 761 TO APPROXIMATELY £80 MILLION OF THE £100 MILLION REMAINING TO BE UTILISED. IT WAS OUR UNDERSTANDING THAT THE FACILITY HAD BEEN VIRTUALLY USED UP BY END-APRIL (BLYE MENTIONED TO PAYTON IN EARLY MAY THAT £90 MILLION OUT OF £100 MILLION HAD BEEN TAKEN UP WITH PROVIDING STERLING FOR THE BANK OF CHINA). BUT IF MORE OF THE FACILITY REMAINS PERHAPS YOU COULD CONSIDER ALLOWING SOME OF IT TO THE CHARTER
ED AND HANG SENG BANKS.
4. THE POSSIBILITY OF AN EXTENSION TO THESE INTERIM ARRANGEMENTS WAS 93 MENTIONED IN BELL'S LETTER TO HADDON-CAVE OF 1 DECEMBER 1972. IF YOU (1972)
FEEL THERE IS A POWERFUL CASE FOR THE EXTENSION OF THE !!!TERIM FACILITY, NO DOUBT YOU WILL PUT THE CASE TO US, WITH REFERENCE TO PARA 6. AND END PARA 5. OF YOUR TEL NO 761, YOU WILL READILY UNDER- STAND HOW WE WOULD VIEW ANY SUCH PROPOSALS.
5. WE BELIEVE, THAT THE BEST WAY TO COVER AN OPEN POSITION IN STERL- ING IN THE COMMERCIAL BANKS IS TO PROVIDE SUITABLE HONG KONG DOLLAR ASSETS FOR THEM TO HOLD (AND WE LOOK FORWARD TO HEARING YOUR REACT- 16 ION TO THE MEMORANDUM ENCLOSED WITH KEEBLE'S LETTER OF 16 FEBRUARY).
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CONFIDENTIAL
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