[Dear Christopher,]
3rd July 1973.
1
We are increasingly concerned about the monetary organisation in Hong Kong and consider that the time may be coming for regulation of the system by a central authority of some kind. The present banking ordinance was created for a different purpose and does not lend itself to application for monetary control. There is a link, of course, between the operation of the banking system and Hong Kong's interest in an extended Sterling Agreemont. We have been corresponding through F.C.O. with the Hong Kong Government in the hope that they might issue Treasury bills and other Government securities to provide local currency assets for the banks who traditionally have employed their funds in sterling and, over the past five years, have enjoyed a specific guarantee from the Hong Kong Government.
It was perhaps the lack of appropriate marketable securities in local currency which led the banks in Hong Kong to react with such enthusiasm to demand for bank loans to finance the purchase of Stock Exchange securities, I visited Hong Kong in May just as they were picking up the pieces and the Stock Exchanges were re-opening for a full day's normal trading. Clearly the boom is over and one wonders why it ever lind to take place. Certainly people in Hong Kong have suffered from it, both collectively and individually. It is not just a matter of individual losses incurred (although it will tako some time to sort out the complex of indebtedness to the banking system) but the increased money supply and the general inflationary atmosphere which abounds are affecting the cost of living. Rising rents resulting from pressures to gain property investments are affecting everyone and these, together with the sudden increases in. food prices imposed on the Colony by the mainland Chinese, are likely to accentuate labour troubles already in evidence.
Just what sort of monetary organisation would be needed is something on which no hasty decision should be takon careful investigation and assessment on the spot would be required - but I think there can be little doubt that such investigation would be worth while. Douglas Stone, who was also in Hong Kong earlier this year, has prepared a paper setting out the problem and some of the background I think it would be useful for us to meet, together with the F.c.o.,to discuss it and I should be glad to know whether you agree.
I am sending a copy of this letter and enclosure to David
Holland at the F.c.o.
[Yours sincerely,]
C.V.Fogarty, Esq., C.B.
IDIT.
(Signed) Stanley Payton