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IMMEDIATE
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FM HONGKONG 160655Z
CONFIDENTIAL
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CONFIDENTIAL [ORWELL]
TO IMMEDIATE F C O TELEGRAM NUMBER 775 OF 16 JULY. 1973
MYTEL NO 761: STERLING GUARANTEE AGREEMENT.
THE FINANCIAL SECRETARY PROPOSES TO REPLY TO THE SENIOR
UNOFFICIAL MEMBER'S QUESTION ALONG THE FOLLOWING LINES:
'' NO SIR, DEFINITIVE NEGOTIATIONS HAVE NOT YET STARTED, BUT WE ARE IN CLOSE TOUCH WITH HER MAJESTY'S GOVERNMENT IN THE UNITED KINGDOM. I VENTURE TO SAY THEY ARE VERY WELL AWARE OF OUR ANXIETIES [ABOUT THE EXCHANGE VALUE OF OUR STERLING RESERVES (WHICH ARE STILL
VERY SUBSTANTIAL DESPITE THE FACT THAT OUR TOTAL EXTERNAL RESERVES HAVE FALLEN FROM THE VERY HIGH LEVEL REACHED IN MID-1972, DESPITE THE ARRANGEMENT NEGOTIATED AT THE END OF LAST YEAR FOR THE WITH-
DRAWAL OF PART OF BANK-OWNED STERLING FROM THE STERLING
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GUARANTEE AND DESPITE THE FACT THAT WE HAVE DIVERSIFIED INTO FOREIGN CURRENCY ASSETS UP TO THE FULL 11 PER CENT PERMITTED.
THE AUTHORITIES IN LONDON ARGUE THAT THE PRESENT FLUID STATE
OF THE WORLD'S MONEY MARKETS MAKES IT DIFFICULT FOR THEM TO DECIDE
ON FUTURE ARRANGEMENTS, IF ANY. I RATHER AGREE WITH MY HONOURABLE FRIEND THAT IT IS THE UNCERTAINTIES OF THE WORLD MONETARY SITUATION WHICH MAKE SOME PRONOUNCEMENT ON THE STERLING BALANCES
VITAL. CERTAINLY THIS CONTINUING DELAY IN SETTLING ARRANGEMENTS FOR THE PERIOD AFTER 24 SEPTEMBER WHEN THE PRESENT STERLING GUARA- NTEE AGREEMENT AND THE RELATED EXCHANGE FUND GUARANTEE SCHEME
EXPIRE CAN ONLY ADD TO OUR ANXIETIES.
- /WE
CONFIDENTIAL