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W
Mr Youde
PS Mr Royle
CONFIDENTIAL
HONG KONG: STERLING GUARANTEES
•
Müsaster
210
Mr Stuart (HK$103)
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ال13.8
Goodfellow PIA
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1 The Treasury have now accepted Hong Kong's proposal of a technical reduction in their MSP to reflect the withdrawal of the banks from the guarantee arrangements. Although, as we know, the Governor would himself have preferred another solution, this acceptance of ExCo's proposal should put the matter out of the way until a new long-term arrangement has to be discussed for when the interim agreement expires in March 1974. This should avoid controversy on the question during the Prime Minister's visit in January.
2.
Unfortunately the Treasury have not made the best of their case in announcing their decision to Hong Kong. The Flag A draft of their telegram is attached. I understand that it has been despatched more or less as drafted. Mr Cambridge had urged on the Treasury changes agreed with Mr Holland and myself. I am sure that the first question asked publicly in Hong Kong is whether there has been a change in the MSP. The Treasury hope this can be avoided. We believe it would be tactically better to acknowledge that there has been a change but to stress its technical nature. The telegram also avoids answering the question, which Hong Kong have specifically referred to, of whether they will be compelled to buy more sterling to maintain the MSP if they acquire new reserves. In fact they will not and we are missing a trick by not saying so. Thirdly, I understand that Mr Haddon-Cave proposed that he should be able to give confidential briefing to selected newspaper editors. of these points have been conceded by the Treasury.
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3. All this is a pity. We want to be able to make the most of our acceptance of Hong Kong's proposals. The telegram invites the Governor to raise other presentational points if he chooses, but it would have been better if we could have offered an attractive package from the first.
4. I fear there is still some way to go before relations between the Treasury and Hong Kong are on an amicable and profitable footing. Mr Barratt's visit to Hong Kong on 16 November may help but, as Sir D Watson has commented, he will need briefing. g have therefore arranged a meeting between Sir D Watson and Mr Barratt in the former's room at 3.30 pm on Wednesday, 14 November. Mr Holland and I will attend.
9 November 1973
cc: Sir D Watson
Mr Holland
Mr Cambridge
DC Sta
A C Stuart
Hong Kong & Indian Ocean Department