SECRET
3. In reply Mrs Hedley-Miller confirmed that time for such
discussions would be found in Dar-es-Salaam. The Treasury
expect and intended to make time for comprehensive talks with
Mr Haddon-Cave. When the unilateral offer of an extension of
the agreement had been made to Hong Kong the means of reaching
a long-term solution were not to hand, because of the unsettled
international situation. The idea of the present declaration
was a holding operation by means of a unilateral guarantee.
This was an interim approach only. For a number of reasons
HMG had had to make the offer unilaterally without negotiation.
In these circumstances it was difficult to think of modifi-
cations or negotiations on the offer.
4. Two questions needed to be considered: 1. the minimum
sterling proportion (MSP) and 2. the sterling holdings of the
Hong Kong banks. It was true that Hong Kong had a high MSP
but they were not the only overseas holders of sterling who
did not like the proportion fixed for them.
It was not easy
to contemplate changes in the context of a unilateral temporary
offer. But she did not mean we wanted to slam the door against
all possibility of modifications.
5. On the question of the Hong Kong banks' holdings of
sterling Mrs Hedley-Miller said it would be helpful if we
could know how much sterling the commercial banks were actually
holding. It might be that they had already shed a great deal
of sterling to the point where they would not wish to diversify.
further. If so, the problem might to some extent already be
behind us. She would therefore be grateful if the Governor
/could
- 2 -
SECRET