the suggestion on various grounds, including a dislike of Government
debt as such which it was feared could be inflationary, and
subsequently a paper countering the objections raised and setting out
the advantages of the proposal both for the banks and the Hong Kong
Government was enclosed with a letter of 16th February 1973 to the
Governor by Keeble (F.C.o.). No reply has been received. The
Governor and the Financial Secretary have said that their main
objection to the proposal is that if the reserves were to be centralised
before the conclusion of new arrangements for sterling this would
strengthen the bargaining position of H.M.G. in that the latter would
no longer need to be concerned with possible action by the banks.
The majority of the banks however would appear to favour a voluntary
scheme enabling them to hold local paper combined with lender of last
resort facilities.
Desirable Regulatory Powers and Institutional Changes
From the foregoing a disinterested, third party expert would
undoubtedly conclude that:
(1) a thorough investigation on the spot of the banking
situation is required:
(2) subject to detailed points thrown up by (1) above,
the establishment of a Monetary Authority with all
the normal powers which should extend to finance
houses and other fringe financial institutions
including possibly the imposition of exchange control
--
and
or reserve powers to that end, is a matter of some
urgency.
He would be right: but the situation in Hong Kong is not
There are two
susceptible to such a black and white approach.
important factors to consider:-