PRIORITY
CYPHER/CAT A
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L.
FM FCO 02183CZ
171
NCAT
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25
ORWELL
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(FRD)
3/€
TO PRIORITY SINGAPORE TELEGRAM NO. 575 OF 2 OCTOBER, 1973
HONG KONG TELEGRAM TO ME NO. 1117 (BEING REPEATED TO YOU
SEPARATELY): HONG KONG AND STERLING GUARANTEES
PLEASE PASS FOLLOWING TO .P $ MR ROYLE.
1. IF THE STERLING HOLDINGS OF THE HONG KONG BANKS ARE NO LONGER
COUNTED AS PART OF THE OFFICIAL RESERVES THEN, SINCE THESE WERE BY DEFINITION ALL STERLING, THE PROPORTION OF STERLING IN THE RESERVES AUTOMATICALLY DROPS. THIS IS THE GOVERNOR'S DILEMMA WHICH
HE EXPLAINED TO US IN LONDON. DURING THE DISCUSSIONS IN
DAR-ES-SALAAM THE TREASURY SUGGESTED TO HADDON-CAVE THAT ALTHOUGH
HONG KONG NEED NOT REACH THE 29 PERCENT N S P AT THE BEGINNING OF THE SIX MONTHS' EXTENSION, THEY SHOULD RETURN TO THIS LEVEL BY STAGES, IF NECESSARY BY BUYING STERLING. EXECUTIVE COUNCIL HAVE
NOW REJECTED THIS.
2. THE COVERNOR'S PROPOSITION IS THAT HONG KONG GOVERNMENT STERLING
HOLDINGS SHOULD QUALIFY FOR THE GUARANTEE IF THEY ARE MAINTAINED ·
AT THE SEPTEMBER 24 LEVEL. HE HAS THEREFORE ABANDONED HALF OF THE
PROPOSITION HE PUT TO US IN LONDON (1 E THAT THE MONG KONG
GOVERNMENT SHOULD BE ABLE TO SELL SOME STERLING BECAUSE THE
PROPORTION OF STERLING IN ITS OWN RESERVES WAS IMPRUDENTLY HIGH); BUT HE IS INSISTING ON THE OTHER HALF (IN EFFECT A TECHNICAL
REDUCTION IN M S P TO REFLECT A NEW SITUATION IN WHICH THE COMMERCIAL BANKS STERLING IS NO LONGER COUNTED AS PART OF OFFICIAL RESERVES).
3. WE ARE URGENTLY CONSIDERING THE GOVERNOR'S PROPOSITION WITH
THE TREASURY, THERE IS A CLEAR RISK OF A LEAK FROM EXECUTIVE COUNCIL, WHICH, IF IT TOOK THE FORM THAT HONG KONG HAD REJECTED HMG'S PROPOSALS, COULD BE DAMAGING, THIS IMPLIES A NEED OF SPEED
ON OUR SIDE AND DISCRETION ON HONG KONG'S.
SECRET
1460
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