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SECRET
ORWELL
مکلش
sea. Cal to HK
TO IMMEDIATE F C O TELNO 1030 OF 10TH SEPTEMBER, 1973.
YOUR TELEGRAM NUMBER 882.
STERLING GUARANTEE AGREEMENTS.
21쓰
NICBTO
134)
Bisla
WE HAVE REPEATEDLY STRESSED THAT A FURTHER GUARANTEE ARRANGE-
MENT ALONG THE LINES OF THE PRESENT STERLING GUARANTEE AGREEMENT
WOULD ONLY BE ACCEPTABLE TO HONG KONG IF OUR VERY HIGH M.S.P.
WAS REDUCED. THIS IS AN IMPERATIVE FOR US NOT ONLY ON GROUNDS
OF MONETARY MANAGEMENT, BUT ALSO FOR POLITICAL REASONS. I AN QUITE SURE THAT EXECUTIVE COUNCIL. WOULD ONLY ADVISE ACCEPTANCE OF ANOTHER
ARRANGEMENT, EVEN FOR SIX MONTHS, IF IT IS COUPLED WITH
(A) A SIGNIFICANT REDUCTION OF OUR M.S.P. FROM 69 PER CENT TO, SAY
70 PER CENT: AND
(B)
AN UNDERSTANDING THAT IT WOULD BE REDUCED TO, SAY, 50 PER CENT
IN ANY FURTHER ARRANGEMENT THEREAFTER.
OBVIOUSLY, IN OUR OWN INTERESTS WE WOULD SEEK TO SELL STERLING AND ACQUIRE OTHER CURRENCIES IN SUCH A WAY AS NOT TO DISTURB THE MARKET, BUT WE MUST HAVE A GREATER DEGREE OF FREEDOM THAN AT PRESENT TO MOVE TOWARDS A MORE BALANCED POSITION, GIVEN II.M.G'S UNWILLINGNESS TO OFFER US A HONG KONG DOLLAR GUARANTEE AND
OUR NEED TO PREPARE FOR THE DAY WHEN EVEN THE PRESENT LIMITED GUARANTEE ARRANGEMENTS IS NO LONGER AVAILABLE.
2.
WE WOULD MOT, IN GENERAL, DISPUTE THE CHANCELLOR'S POINT THAT THE STERLING GUARANTEE AGREEMENTS HAVE PROVIDED AN
''ELEMENT OF STABILITY'' AGAINST A BACKGROUND OF UNCERTAINTY IN INTERNATIONAL MONETARY AFFAIRS'' (PARAGRAPH 2 OF HIS MESSAGE).
BUT WE ARE PARTICULARLY CONSCIOUS OF THE VERY SUBSTANTIAL LOSSES
WE HAVE SUFFERED (EVEN AFTER ALLOWING FOR THE RELATIVELY HIGH RATES OF INTEREST PREVAILING IN LONDON) AS A RESULT OF THE
REVALUATION OF STERLING IN DECEMBER 1971 FOLLOWED BY THE FLOAT
DOWN SINCE JUNE 1972 SO THAT NOW THE AVERAGE DEVALUATION OF STERLING
AGAINST LEADING CURRENCIES IS ALMOST 19 PER CENT. WE WOULD BE
SECRET
/POLITICALLY