SAPS 400D
IMMEDIATE
CYPHER/CAT A
FM HONG KONG 120729Z
SECRET [ORWELL]
SECRET
see bed To NK.
لق
RECEIVED IN REGISTRY No. 51
1 SEP 1973
INKKS
14-17
TO IMMEDIATE F C O TELNO 1936 OF. 12TH SEPTEMBER,
136
137
98
YOUR TELEGRAMS 895, 896 AND 397.
STERLING GUARANTEE AGREEMENTS.
1973.
LABT
REF.
NUR?
REF.
/
138
WE ARE URGENTLY STUDYING THESE DOCUMENTS, BUT FOUR POINTS CAN BE MADE IMMEDIATELY..
(1) PARAGRAPH 2 OF THE DESPATCH: IT IS UNLIKELY THAT WE SHALL BE ABLE TO TAKE UP YOUR OFFER TO INCLUDE BANK OWNED STERLING IN 0.S.R., BECAUSE WE ARE NOT PREPARED TO OFFER THE BANKS
A GUARANTEE SIMILAR TO THE PRESENT EXCHANGE FUND GUARANTEE SCHEME AND OUR UNDERSTANDING IS THAT THE BANKS WOULD PREFER TO STAY OUT- SIDE RATHER THAN HAVE A U.S. DOLLAR GUARANTEE WITH THE ACCOMP- ANYING LIMITATIONS ON THEIR FREEDOM OF ACTION IN FOREIGN
EXCHANGE MARKETS:
(2) BALANCES ELIGIBLE FOR GUARANTEE: THE VALUE OF THE GUARANTEE IS DISCOUNTED BY THE DECISION TO USE THE SAME FORMULA FOR CALCULATING ELIGIBLE BALANCES AS IN THE PRESENT AGREEMENT: (3) MINIMUM STERLING PROPORTION: WE COULD NOT MEET EITHER OF THE CONDITIONS IN PARAGRAPH 3 OF THE DECLARATION BECAUSE THE BANKS HAVE BEEN SELLING FORWARD FOR SOME TIME AS WE HAVE TOLD YOU IN EARLIER TELEGRAMS: AND SO THE COLONY'S AGGREGATE STERLING HOLDINGS AFTER REPEAT AFTER 24TH SEPTENDER WILL BE INSUFFICIENT TO ENABLE US TO MAINTAIN THE M.S.P. WITHOUT THE EXCHANGE FUND PURCHASING STERLING WITH FOREIGN CURRENCIES. THIS WE ARE NOT PREPARED TO DO (AND IT WOULD BE QUITE IMPRACTICABLE TO GET THE POSITION RIGHT BY PURCHASING STERLING ON THE LOCAL, MARKET WITH HONG KONG DOLLARS). IF THE BANKS ARE NOT BROUGHT UNDER THE UMBRELLA OF THE NEW AGREEMENT, THEN THE AMOUNT OF STERLING WHICH WOULD HAVE TO BE PURCHASED WOULD BE, OF COURSE, EVEN GREATER. IF FOLLOWS THAT OUR VIEW THAT THE M.S.P. IN ANY NEW AGREEMENT SHOULD BE 70 PER CENT IS NOT ONLY REASONABLE BUT, IN THE CIRCUMSTANCES, REALISTIC AS WELL:
/(4) IT SEEMS
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