CONFIDENTIAL
21
(20)
MR WILFORD
HONG KONG:
1.
STERLING AGREEMENT
Thank you for letting me see the draft telegram to Hong Kong attached to Mr Stuart's minute of 7 March. I recognise that, with the continuing uncertainty over the possible return of sterling to a fixed parity, the future of the sterling agreement and the whole of the international monetary system generally, we can do no more than stall with the Hong Kong Government for the time being. But as you say, we must at least try to be diplomatic.
2.
On the other hand, we all know that this is a problem which has a major bearing on political relationships with Hong Kong, and must be settled satisfactorily as soon as we can. It has for some time been in my mind that, when the opportunity does come to sort out Hong Kong's exchange and currency problems, we should perhaps take a more radical look at the whole business than I have so far seen suggested. I have particularly in mind the central position of the commercial banks in Hong Kong's present exchange and reserves system, and the possible desirability of making a fundamental change by establishing some form of local monetary authority, on the lines for example of that which exists in Singapore. I am however a layman in this field and I would welcome any preliminary thoughts from the experts on this idea. If it were to be developed there would obviously be need for consultation with the Treasury and the Bank of England and (in view of the rumpus to which it would be likely to give rise) would require very careful tactical handling with the Hong Kong Government. But I suggest that it would be worth examining, possibly with a view at the right moment to a personal and strictly confidential sounding of the Governor in the first instance.
Watian
8 March 1973
(Duncan watson)
Copies to:
Mr Holland Mr Keeble Mr Stuart
CONFIDENTIAL