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Top financial
South Cauna Mamuy Post experts blast
Sept 8 1973
UK move
on reserves
The Chairman of the Hongkong and Shanghai Bank, Mr Guy Sayer, said yesterday that London's decision to extend the sterling reserves guarantee agreements for a further six months represents "on the face of it, a pretty miserable box of tricks."
Strong words for a banker. But they were being echoed throughout the financial community yesterday as irritation mounted over the arbitrary fashion in which the U.K. authorities have apparently decided to treat our reserves of some $9,000 million in London and those of other countries whose holdings serve to underpin the pound.
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Mr Sayer conceded that the announcement, which extends the compensation agreement at a new rate of U.S.$2.4213 to the pound instead of the old $2.40 base decided at the time of the Basle swaps, "appears to be better than we had before, and is a step in the right direction."
But there are two enormous flaws in the new arrangements, on the information so far generated from Whitehall, which worry Mr Sayer and many other people in the Colony.
Firstly, there is apparently no scope for Hongkong to continue an orderly diversi- fication of its reserves out of sterling and into other currencies.
So far, we have run them down to 89 per cent of the total, with Treasury approval, shifting into U.S. dollars, yen, deutschmarks or whatever seemed appropriate.
Any economist, whatever his nationality, would concede that it is frightenly dangerous to keep such a large chunk of reserves in one currency in 'these uncertain times.
Secondly, there has been a reaction close to fury about the fact that there has been a complete lack of response from Treasury officials to approaches by the Financial Secretary and by the Governor himself, as recently as three weeks ago on a visit to London.
Repeated attempts to open a dialogue have been brushed aside despite the fact that the monetary agreement clearly carried a clause which allowed negotiations and discussions before the expiry period on September 24.
Hongkong's
individual
banks have been able to take steps to protect their depositors and shareholders interests by prudent forward covering in the foreign exchange market as the pound wallowed helplessly in a quick sand of balance of payments, political and Common Market problems.
serves
But the Government's re- representing money earned by the people of Hongkong and deposited in an international "Bank" are still in danger of being ultimately stripped of any protection whatsoever.
The most urgent representa- tions are likely to go out from Government House to Whitehall this weekend calling for clarification of what is a rather wooly statement and again pressing the need for consultations a reasonable request in view of what we have at stake.
The crux of the argument today is whether it is equitable to fix a guarantee based on the
By MALCOLM SURRY, FINANCIAL EDITOR
relationship between the pound and the U.S. dollar a rate which bluntly could go anywhere.
Mr Sayer remarked: "It would have been fairer to see the rate for adjustment payments based on the aggregate Hongkong dollar to sterling rate for the period of the extension.”
But Whitehall is under no illusions about the strength of the Colony's money compared to sterling, and has already rejected arguments in this direction assuming they
listened to them.
One highly placed financial man said last night: "This six- month extension can only mean that the UK has pressed the panic button. They are trying to paper up a serious economic situation and seem to expect Hongkong to prop up а
MR SAYER
seemingly tottering structure.”
In short, informed opinion in the Colony holds that the British authorities (admittedly struggling with dozens of mind- bending economic dangers) have opted to stick their heads into the sand in a fashion which might mean that, come next March 24, we will all be back where we started.
The UK could not afford to see a whole sale dumping of sterling and British Government securities by Hongkong.
But that spectre need not occur. If we had the ability to diversify, say up to 50 per cent out of sterling, the actual implementation of such an excercise would be a slow process.
The pound is looking so ribby these days that the currency might soon be considered a “buy” on the view that it simply could not go down any further.
Unfortunately the men who make moneymarkets have not reached this conclusion.
A compromise can be reached. Responsible UK Government officials will surely accept that they cannot sustain their monetary parity on the chcap.
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Politics normally have place in Business News. But the political implications of this particular hot potato will reach the dollar bills in the pockets of our 4.5 million people.
The first element of compromise is obviously discussion. And the visit of a highly-placed UK economic official to Hongkong to help strive to sort out the massive problem sensibly would not be inappropriate.
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