/Sterling guaranicę arrangements:
HK Govt will seek clarification of
future UK intentions
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Hongkong will continue to press the British Government for clarification of their future intentions regarding the present sterling
ments.
guarantee arrange.
This undertaking was given yesterday by the Financial Secretary, Mr Philip Haddon- Cave, when winding up the resumed budget debate in Legislative Council.
Referring to a suggestion by Mr Q. W. Lee, the Financial Secretary said that the British Government was not prepared to guarantee all or at least a substantial part of Hongkong's sterling assets in terms of the Hongkong dollar or gold.
The U.K. Government, he added, had indicated that any extension of the
present
guarantee arrangements must continue to be expressed in terms of the U.S. dollar, which was the only alternative reserve currency to sterling for any subtantial block of assets.
"I am afraid, therefore, that fluctuations in the value of our reserves is a price we have to pay for the instability in world currency markets, but we live also, remember, in a world of high interest rates," he said.
The Financial Secretary said
that Hongkong had 110W diversified its total official external reserves up to the limit of its 10 per cent diversification facility, having regard to daily shifts in, prices of various securities and relative currency
values.
This, he added, had not been an casy task, "for many countries are unwilling to accept investments in their currencies in other than modest amounts on any reasonable terms."
Noting, the fears expressed that Hongkong might price, itself out of overseas markets as a result of rising costs, the Financial Secretary said it should not bc so easily concluded that Hongkong was "becoming uncompetitive."
He pointed out that despite the difficulties in 1971 and 1972, the value of Hongkong's exports had expanded by more than 10 per cent in both years. The gross domestic product had also increased by 10 per cent in 1971 and 17 per cent in the following year while a full employment situation and a booming economy maintained.
were
In his view, these were in direct "testimony to the
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Hongkong
strength of the economy over this period rather than the opposite.”
"In these circumstances, and given the overwhelming importance of external trade to our economy, the best policy for the exchange rate of the Hongkong dollar is stability," he stressed.
By this he meant stability in relation to the average of other currencies as a whole.
He explained that in these terms, Hongkong had more or less broken even over the last two years, although the Hongkong dollar had appreciated in relation to both the pound sterling and U.S. dollar due to their devaluations or downward floats.
The Financial Secretary agreed that recent Government decisions might have made things more difficult, in the short term, for Hongkong exporters in the United States and British markets and elsewhere in relation to one or two of our competitors.
He also accepted that if internal costs, including wages and rents were to rise unduly at the present exchange rate then Hongkong's exports could become
competitive abroad.
less
However, he did not believe that devaluation was An appropriate corrective instrument for any weakness which might appear in our balance of payments because it would be an inefficient and inflationary corrective.
The Financial Secretary said Hongkong's economy was still expanding rapidly and he believed that it was flexible enough to maintain this growth.
On
One encouraging feature was that investment in buildings, plant and equipment was now running at 25 per cent of the gross domestic product and he felt that this should produce a stimulating effect productivity in industry as well as assist in keeping down costs.
He described as “unusual” the rate of expansion in Hongkong's money supply over the last year but said this was not a bad development because it pointed to a high and growing degree of confidence in the Hongkong economy.
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This expansion, he said, was due not so much to external factors but rather to significant increase in bank loans and advances, particularly to increased internal demands.
"However, it clearly cannot go beyond certain limits dictated by prudent banking practices and liquidity considerations," said the Financial Secretary.
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