W
Y
Mr Wilford
Private Secretary
SECRET
Could.
ни
Governor
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STERLING AGREEMENTS AND HONG KONG
in confid
1. Our Sterling Agreements with Hong Kong, and a number of
other countries, require them to hold a minimum percentage
of their reserves (MSP) in sterling. Hong Kong have asked us
(Hong Kong telegram No 728) whether, in present circumstances,
they can breach this requirement. Subsequently they have told
us (Hong Kong telegram No 741) that they have now done so (but
only slightly).
2. The Treasury are very unwilling to agree. This is a most
favoured/nation (mfn) agreement and the other countries with
Sterling Agreements would be entitled to demand the same
treatment. Hong Kong's purpose is to prop up the US dollar,
with which the Hong Kong dollar is formally linked, but we
doubt if this is wise in view of the worldwide weakness of the
US dollar; and sterling itself is not in such good condition
that we can lightly agree to the duetion of oberling
bulances at this moment.
3. Against this there is the fact that the Treasury are
considering terminating the Sterling Agreements altogether in
September. We are dealing with this question separately but it is relevant for present purposes that, if Hong Kong are
going to be told in two months' time that they are free to
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