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XCS(73)9
(a)
(b)
the guarantee should be in terms of a basket of strong currencies or S.D.Ks;
a settlement on the basis of the difference between US$2.4213 and the average of daily rates was unsatisfactory as the rate on 31st March 1974 might well be below the average rate and, therefore, losses might not be covered in full.
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In reply, the Chancellor repeated that the floating of sterling had made it impossible to renegotiate the agreements and, rather than allow them to lapse, he had come up with the concept of a Declaration. He defended the use of the US dollar as the numeraire on the grounds that it is the main reserve asset and said that, if agreement countries did not wish to participate in the benefits of the Declaration then, presumably, they would not put in the necessary returns, At this point he explicitly stated that there were to be no reductions in any M. S. P. He said it was easy to choose the guarantee rate in September 1968 for there was, at that time, a US dollar/sterling parity. The nearest equivalent to a parity now, in a floating situation, was the average rate over the period. He concluded by saying that he considered the Declaration to be a fair and reasonable offer "to take us all over the next few months" and, without giving any undertaking to arrange for proper negotiations, he said that "I will be getting in touch with you on how best to proceed in the future".
Talks in Dar-es-Salaam
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The Financial Secretary met with Treasury and Bank of England officials in Dar-es-Salaam for varying periods on eight separate occasions and he put forward Hong Kong's position along the following lines (most of the points having already been made in telegrams):
(a) that, having regard to
(b)
(i)
our large sterling balances;
(ii)
our high M.S.P.;
(iii)
the fact that these balances are only offset to
a very limited extent by sterling liabilities (contrast, for example, Australia with an M.S.F. moreover of only 36%);
Hong Kong deserved special treatment;
that this should take the form of a reduction in our M.S. P. to 70% with an undertaking that it would be further reduced to 50% in any successor arrangement
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