SECRET
excessive holdings of sterling. When these excessive holdings were reduced by other means, then the problem which the Haddon-Cave/Bell facility was intended to solve did not arise.
15. There was also disagreement about whether, if the money in the Haddon-Cave/Bell facility was not used during the period allowed for, it could be carried forward to some future date. The HongKong authorities argued that, since they had not diversified to the full extent permitted by the facility, they still had a right to diversify to that extent. The British representatives argued that the Haddon-Cave/ Bell facility had to come to an end in April and the HongKong authori- ties could not accumulate "credit" with the facility. They stressed that the main purpose of the facility had been to phase diversification over time.
16. Mr Haddon-Cave said that the HongKong Government was giving authority to the HongKong banks to diversify by up to £6m per week until the expiry of the agreement on 24 September.
17. Mrs Hedley-Miller said she would be in touch with the HongKong authorities later on this point. Note: subsequently Mrs Hedley- Miller wrote to Mr Haddon-Cave on 10 August recording that there were differences between the two sides on the interpretation of the agree- ment and agreeing to the continuation of the authorisation to diversify by up to £6m per week.7
Reform of HongKong Monetary System
18. Although there was not time to discuss this subject, Mrs Hedley- Miller reminded the HongKong authorities that HMG would wish to discuss further the reform of the HongKong monetary system, both the banking controls and the possible issue of Government paper.
Publicity
19. There was some talk about what Mr Haddon-Cave could say on his return to HongKong. It was agreed that he could say nothing substantive at this stage. He would have to confine himself to saying that their had been talks and that the Chancellor was expected to make proposals shortly.
Copies to those present on the British side plus:
Mr Gwynn & Mrs Gilmore
Treasury
balt. 13/8