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weakness of the latter has forced down the value of the Hong
Kong dollar in terms of other currencies, thus making her
imports more expensive. When the Hong Kong authorities were
recently obliged to take in US dollars to maintain the
US/Hong Kong dollar rate, we suggested that they should
consider breaking the link; but the immediate crisis passed
without that being necessary. It is not impossible that
Hong Kong will face a similar crisis again if the US dollar
remains weak. We are of course watching the situation and
will be ready to offer further advice. The Bank have given
a good deal of thought to thẻ various alternative exchange-
rate policies which might meet Hong Kong's needs better than
their present one. Consideration is being given in Whitehall
to the question of whether and when it will be appropriate to
put these thoughts to Hong Kong.
5. It will, we think, be desirable to keep the discussions
of these different problems separate so far as is possible.
There is inevitably an element of an adversary relationship in
discussions between HMG and the Hong Kong Government on the
Sterling Agreement. On the other hand we have no particular
axe to grind, apart from our general interest in seeing Hong
Kong well-administered, in promoting better financial management
in Hong Kong. It would be a pity if disagreements between us on
the Sterling Agreements came to infect what we hope will be a
joint and careful examination of this problem.
A further
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