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Mr Haddon-Cave pointed out that by chance £240 million (the total for diversification) would amount to £20 million per month for a twelve month period plus the approximate £24 million interest. This would break down to a £8.4 million for the Commercial Banks plus £13.5 million for the Hong Kong Government i.e. £22 million a month which again worked out to £1 million for each working day. He suggested that these amounts could be sold at reasonable and agreed intervals and that the Bank of England should act as their agents over this. He pointed out that this would also mean the Bank could police the diversification. There was some discussion as to the rates at which the money might be sold and whether it should be by a series of flat swaps at a fixed rate and what would happen if the rate for sterling was, fixed against other currencies.
Mr Haddon-Cave said there were four aspects for him over sterling.
These were
a.
the Hong Kong economy;
b.
the stability of Hong Kong's banking system;
C.
the Government's fiscal position;
d. the Exchange Fund.
Mr Haddon-Cave said that there were two alternatives, either their position in sterling must be covered to their own satisfaction or they must be allowed the freedom to make their own mistakes. Hong Kong was "totally indifferent" to which of these courses was selected.
Haddon-Cave/Bell Facility
Until this point, the meeting had been good tempered, but discussion of the Haddon-Cave/Bell facility was extremely bad tempered on the Hong Kong side.
The
Discussion centred on the basis of the agreement. Treasury maintained that the £100 million which it was agreed the Banks could diversify at the rate of £20 million per month between December 1972 and April 1973 had been used up by the provision of sterling for the Bank of China. This meant on Mr Haddon-Cave's own admittance that morning to £148 million. Mr Haddon-Cave countered that the Hong Kong and Shanghai Bank had sold £81 million against Hong Kong dollars as a normal transaction to feed the Bank of China. This they were committed to do and had every right to do by reducing their reserves. By his estimation only £8 million had been actually "diversified". He insisted that he had told the Banks they could diversify at the rate of £6 million a week between the beginning of August and the end of September in order to use up the rest of the Haddon-Cave/Bell facility. He refused to be instructed by Treasury about this and would not accept their instruction (FCO telegram No 755) which restricted him to £20 million in each of August and September. The meeting realised that in fact the amounts under each concession amounted to almost the same since £12 million had so far been diversified under the
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/arrangement