SECRET
3 -
(d) The Governor is evidently cost-conscious; the cost to the
Hong Kong Government of issuing paper would, of course, depend on the price at which the banks were prepared to take it up;
but I see no reason why the Hong Kong Government should not
driv
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drive a reasonable bargain, and the cost ought certainly to be less than the present arrangements.
I
As usual, there does not seem to be much solid comfort that
we can give Hong Kong. We should clearly persevere with our efforts to get the Hong Kong Government to issue some Hong Kong dollar paper,
and to make a market in it.
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In the shorter term, we should give the Governor what assurances we can about an early resumption of the negotiations for a new Sterling Agreement, together, perhaps, with an undertaking to permit further phased diversification by the banks
when the present 5-month period runs out..
8th January 1973..