CONFIDENTIAL
201
Reference...
MF9/548/1
Mr Cambridge
STERLING ARRANGEMENTS
1. Mr Walker's letter of, 30 October to Mr Marshall, and my minute of the same date to Mr Aust.
2. RID and SWPD have no comments on the drafts to Australia and Ireland respectively. Mr Holland has suggested that both drafts could be amended so that, like the one to Hong Kong, they would end by explicitly seeking confirmation that changes we are prepared to make will enable those countries to participate in the new guarantee arrangements.
Hong Kong
1
3. Mr Holland has suggested that it would be useful to clarify to the Governor what we are prepared to have Mr Haddon-Cave say in any event, and what he may say if
HKI OD pressed, as it is likely that he will be. suggested that we might also enhance our changes of securing Hong Kong's agreement to our proposals if we reminded them of the provision in the new arrangements by which countries with rising reserves do not have to increase their holdings of sterling proportionately as they did under the former Sterling Agreements. Hong Kong telegram No 1215 of 22 October suggests that Hong Kong had forgotten this point. Finally, Mr Holland suggested that we might encourage the Treasury to respond reasonably helpfully towards the suggestion in Hong Kong telegram No 1133 of 5 October that Mr Haddon-Cave should be allowed to give selected editors confidential background briefing, in the interests of stemming the flow of hostile press comment in Hong Kong. We could hardly stop him doing so but, subject to Mr Stuart's views, it could make both the Government and the press in Hong Kong better disposed towards us. Although it is true, as the present draft states, that Hong Kong's MSP has not been officially disclosed, it is common knowledge in Hong Kong that it is 89%, so it would be unrealistic not to expect questions as to what the new level is.
4. I therefore suggest that paragraph 4 of the present draft letter to Hong Kong be amended by deleting the last two sentences, and inserting:-
"If pressed, you could go on to say that the MSP under the old Agreement was designed to cover both Government and Banks' holdings of sterling; the withdrawal of the latter from the scheme requires a consequential lowering of the Hong Kong Government's MSP to ensure that the Government is not obliged to increase its holdings of sterling to compensate for the withdrawal of the banks'.
/Moreover
CONFIDENTIAL
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