SECRET
PA
207
GRO 72%
PRIORITY CYPHER/CAT A
HKK 5/1
13x1
(FRD)
171
F1 FCO 081000Z
SECRET
ORVELL
TO PRIORITY GOVERNOR HONG KONG TELNO 1133 OF 3 NOVEMBER 1973
YOUR TELNO 1117: STERLING GUARANTEES.
1. WE HAVE CONSULTED MINISTERS AND CAN NOW REPLY SUBSTANTIVELY TO
THE PROPOSAL IN YOUR TELEGRAM UNDER REFERENCE.
2. WE CAN EFFECTIVELY ACCEPT THE MAIN FEATURE OF THIS PROPOSAL, BUT NEED TO TRANSLATE IT INTO TERMS WHICH ARE AS COMPATIBLE AS
POSSIBLE WITH THE GUARANTEE OFFER WHICH OTHERS HAVE ACCEPTED MORE
OR LESS AS IT STANDS.
3. WE ACCORDINGLY AGREE THAT THE NEW ARRANGEMENTS SHOULD EXTEND CNLY TO THE STERLING HOLDINGS OF THE HONG KONG GOVERNMENT, ON THE BAGTS THAT GUVERNMENT STERLING HOLDINGS WERE 6348 MILLION ON ØG SEPTEMBER (AFTÈR ADJUSTMENT IS MADE FOR THE £18 MILLION COMPELCATION TO THE COMMERCIAL DANKS UNDER THE EXCHANGE FUND GUARANTEE SCHEMS) AND THAT TOTAL OFFICIAL EXTERNAL RESERVES WERE C434 MILLION, THE STERLING PROPORTION ON THAT DATE WAS APPROXIMATELY 30 PER CENT. GIVEN THAT THE STERLING HOLDINGS OF THE BANKS WILL NOT BE COVERED BY THE ARRANGEMENT, WE CAN ACCEPT THAT REFERENCES IN PARAGRAPH 3 OF THE DECLARATION TO
MINIMUM STERLING PROPORTION SHOULD BE READ AS REFERRING TO A
HINIMUM STERLING PROPORTION OF 80 PER CENT. THIS IS THE ONLY.
MODIFICATION NECESSARY TO DEAL WITH THE NON-PARTICIPATION OF THE
COMMERCIAL BANKS AND, CONSISTENTLY WITH OUR GENERAL APPROACH, THE
TERMS OF THE DECLARATION REMAIN UNCHANGED IN OTHER RESPECTS.
4. WE HOPE THAT THIS MODIFICATION WILL NOW ENABLE HONG KONG TO PARTICIPATE IN THE ARRANGEMENT.
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