DRAFT TELEGRAM TO HONG KONG
w/203
STERLING ARRANGEMENTS
We have been able to consult Ministers on the basis of the material
that you have kindly provided and can now respond substantively to
the propositions set out in your telegram 1117.
2. Given the run-down in the sterling holdings of the commercial
banks, it is now plainly appropriate that the guarantee should
extend only to the sterling holdings of the Hong Kong Government.
We consider it appropriate to adjust your MSP accordingly, to take
account of the non-inclusion of the commercial banks, and that the
adjusted MSP should be 80%, corresponding to the ratio of official
sterling holdings to total official external reserves on 26 September
(after payment of £19 million compensation to the commercial banks
under the Exchange Fund Guarantee Scheme.
3.
i
Barratt
Paragraph 10 of telegram 1117 refers to the implications for
minimum sterling holdings of a fall in the price of gilts.
would like to discuss this with you on his forthcoming visit.
•
4. We hope that the modification described in paragraph 2 above
now enables Hong Kong to participate in the arrangement. On
presentational aspects, it is most important that news of it should
not reach other participants in the guarantee arrangement in a way
that causes them to think that Hong Kong has been singled out for
specially favourable treatment. We know that you appreciate this.
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