Our reference: Your reference:
2 F(RMSA) 12/91/01
Dive. In Helland
Treasury Chambers
Great George Street, London S.W.1 Telephone: 01-930 1234, ext. 460
For. Mr. Crowsin
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Rmk247 19 July 1973
CONFIDENTIAL
STERLING AGREEMENT: HONG KONG
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line to be At our meeting on 16 June we agreed on the taken in reply to the request in Hong Kong telegram 761 for prior authority for further small breaches of MSP and to their suggestion about an exchange guarantee at a current rate on newly-acquired sterling.
2. We have attempted to produce a form of words on the matters for Hong Kong which is given in the enclosed draft telegram.
3.
We did not complete discussion of a further diversification facility for the Hong Kong commercial banks. My own feeling is that we must first probe the Financial Secretary's statement that £80 million of the £100 million 1972 facility is still in existence. I think that we have arguably been rather forthcoming about the Hong Kong Government's arrangements with the Commercial Banks: but I can see that this may not be the moment to toughen up, so I do not rule out the possibility of seeking authority for further withdrawals of commercial bank sterling.
4. We have, as suggested to Mr Payton's mufaxed draft of 13 July, also included an enquiry on how the Hong Kong authorities now view the question of issuing Hong Kong dollar denominated assets for their commercial banks.
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5. The remaining problem is that of exchange rate policy. We have, of course, studied the memorandum enclosed with Mr Stone's letter of 13 July but in present circumstances, in view of Mr Hadden-Cave's clear view to the contrary, I am still doubtful about a firm recommendation to Hong Kong that they should float the exchange rate for the Hong Kong dollar. 6. But the questions of exchange rate policy, and of banking reform in Hong Kong, on which we now have useful memoranda from the Bank of England, must both be further discussed between us.
Meanwhile, if you wish to I hope to arrange a meeting soon. discuss the proposed draft telegram we are at your disposal.
7. I am sending a copy of this letter and enclosure to Mr Stone in the Bank of England.
D G Holland Esq
Foreign & Commonwealth Office
Wern Weavily any Haller,
Mrs M E Hedley-Miller duhe
CONFIDENTIAL