SECRET
13.
Justification could be on the following lines. It would be
open to both' HMG and the Hong Kong authorities to say that, by
virtue of the inclusion of the commercial banks, the previous
Agreement with Hong Kong was entirely special. This reflected the peculiar financial set-up of the colony and differentiated the Hong Kong Agreement from all others. Under the new arrange- ment, the commercial banks will not participate because, as a
result of the diversification that has already taken place and the
recent expansion of their domestic advances, their sterling holdings are now minimal. But the Hong Kong authorities will be
remaining under the guarantee umbrella on the basis of the proportion of sterling in the total external reserves of the Government effectively obtaining on 24 September.
34. It is hard to ace that Australia, New Zealand or Ireland
could object to this arrangement because all had adjustments made
to their positions at one point or another under the previous Agreements to permit the exclusion of commercial bank sterling Given the excess of Kuwait's present sterling holdings over MSP,
it would seem realistic to assume that Kuwait would be largely
indifferent.
15. In those circumstances, the balance of argument appears to
favour accommodating Hong Kong in the guarantee arrangement on the basis of an MSP of 80 per cent.
24 October 1973
1