you may be faced in this context but cannot hold out
the prospect of early negotiations in present
circumstances.
3.
Following are observations on some of the specific problems indicated in your telegram:
a.
On the extent to which you can afford to
maintain the present exchange value of the Hong Kong
dollar, you say in your paragraph 2 that the
unchanged gold parity of the Hong Kong dollar follow-
ing the devaluation of the US dollar was welcomed
locally. This was presumably because it was in Hong
Kong's interests in relation inter alia to your food imports from China and the importance of textiles,
generally subject to quotas, in your exports.
Seen
from here, these considerations seem likely to continue to be of major importance.
b. On the Exchange Fund Guarantee Scheme, we
realise that the recent exchange rate variations will involve your making additional payments of sterling
to the banks out of your reserves. This is one of
the results of the decision to maintain the gold
parity of the Hong Kong dollar, which you will of
course have weighed in making your decision. This
result seems to us to reinforce the arguments set out in the memorandum which accompanied Keeble's letter
of 16 February on the desirability of issuing local
paper to the banks in exchange for their excess
foreign exchange holdings.
C.
On the question of whether the previous
sterling link should be re-established when a new
fixed parity for sterling is introduced, you will, we
(11516) Dd.392077 300m 10/68 G.W.B.Ltd. Gp.863
/ imagine,
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