SOUTH CHINA MORNING POST SREPT 26th 73
HK certain
to reject' £ guarantee
extension
:
* MAFD IN *SERY No.21 15 CCT #173
NICK 3/1
Hongkong is almost certain to reject the British "offer” to extend the guarantee covering more than $9.000 million worth of sterling reserves in London for the next six months.
Some of the financial men who have swarmed into Nairobi for the International Monetary Fund and World Bank meetings came straight from the Finance Ministers' Conference in Dar-es-Salaam.
And the word in the corridors here is that the Colony's Financial Secretary, Mr Philip Haddon Cave, got precisely nowhere in his last-ditch effort to reach a new accord before the deadline on the old agreement expired at midnight yesterday.
Mr Haddon-Cave clearly saw no future in carrying his plea in the IMF forum in Kenya and he literally shot through here for a few hours before starting the urgent discussions of the subject now going on in Hongkong,
The Chairman of the Hongkong and Shanghai Banking Corporation. Mr Guy Sayer, who is attending the Nairobi meeting, told me last night: “As far as I con sather, we met n brick wall in Dar es Salaam
a
“It was a monologue rather than a dialogue and 1 repent my view that the British offer as it stands is a miserable bos of tričk» » which is totally unacceptable."
From today, the £150 million or so which Hongkong banks hold in London constituting part of our reserves are practically completely stripped of protection.
The agreement under which the Hongkong Government compensated the banks' after any devaluation of sterling against the Hongkong dollar affected their holdings is also out of the window unless we accept London's terms or negotiate some
more.
As Mr Sayer put it, “the crunch has arrived."
The Colony's banking system is right in the front line in the current limbo situation.
The banks have been selling pounds short on the world's foreign exchange markets to protect themselves against the dismal performance of sterling.
European money dealers reckon that the Colony sold about £100 million during the six weeks up to September 24,
Mr Sayer did not contend this figure but he said: "Whatever it was, it was a drop in the occan, compared with the view other countries have taken on sterling and in particular when looked at against the UK balance of payments.”
.
i
!
The British Chancellor of Exchequer. Mr Anthony Barber. appeared to he inflexible in his demand that the Colony, "far and away the biggest holder of sterling
balances." will not have the right in the next six months to diversify.
The Hongkong Government. if it did meet the British requirements, would effectively have to ask the banks to wade into the money markets to repurchase pounds to bring the reserves back to the official level.
The rules, as they still more or less exist, require the banks to keep all the excess reserves in pounds.
The Government, In the present situation, could NOL cover banks
against the exchange risk by putting our own hard-earned cash coffers on the line.
That sounds untenable and. in Mr Sayer's view, completely unfair.
"But who would? It is unreasonable for someone to take on the role of a central bank without any protection. whatsoever,” he asked.
The two big things which Hongkong believes to be wrong with the British proposal are the inability to diversify and the fact the new guarantee is based on the average price of sterling against the U.S. dollar over the next six months.