presumably continue to be guided by Hong Kong's
interests in relation particularly to the balance
of import and export prices as well as by the
IMF rules.
3. On the Exchange Fund Guarantee Scheme, we
realise that the récent exchange rate variations
have increased the foreign exchange cost to you
of the guarantee. 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
reinforces the arguments set out in the memo-
randum 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.
4. You also mention the possibility of
re-establishing the previous sterling link when
a new fixed parity for sterling is introduced.
Again you will want to examine this in the light
of your interests and of all that has happened
since sterling floated.
5. We accept that it might be easier for you
to take these decisions if the nature of the
arrangements to follow the expiry of the sterling
agreement were already known. But the position
is still as described in the third paragraph of
Keeble's letter to you of 16 February. We have
not forgotten your interests, We will let you
know as soon as there is any change.
032717 E.W.& S., Ltd. 164m 3/67.
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