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IN RECOGNITION OF THE ABOVE POSITION, AT DAR ES SALAAM, TREASURY OFFICIALS OFFERED A FORMULA FOR PARTICIPATION IN THE
GUARANTEE WHICH WOULD GIVE US LEEWAY IN TIME TO RECONSTITUTE
THE FORMER M.S.P. OF 89 PER CENT. WE HAVE CONSIDERED THIS OFFER
CAREFULLY AND TAKEN THE ADVICE OF EX.CO.
7. THE DIFFICULTY ABOUT THIS PROPOSAL IS THAT IT WOULD ONLY BE
IMPLEMENTED BY US FOLLOWING ONE OR OTHER OF THE FOLLOWING COURSES:-
(A) TO BUY STERLING ASSETS WORTH ABOUT POUNDS 317 MILLION AGAINST
HK DOLLARS OR
(B) TO SWITCH POUNDS 34 MILLION OUT OF A TOTAL OF POUNDS 82
MILLION OF OUR NON-STERLING ASSETS.
I WILL NOT GO INTO THE ARITHMETIC OF THESE ALTERNATIVES IN
THIS TELEGRAM AS YOUR ADVISORS WILL BE FAMILIAR WITH THE CALCULATION.
3.
THE EXECUTIVE COUNCIL WAS FIRMLY OPPOSED TO EITHER COURSE. (A) IS FRANKLY IMPRACTICAL, AND (B) COULD NOT BE DEFENDED AS PRUDENT MANAGEMENT OF OUR RESERVES NOR COULD IT BE DEFENDED POLITICALLY.
9. ON THE OTHER HAND, THE EXECUTIVE COUNCIL ACCEPTED H.M.G'S
OBJECTIVE OF STABILISING THE SITUATION PENDING THE FORMULATION OF
LONGER TERM ARRANGEMENTS AND WAS ANXIOUS THAT H.K. SHOULD NOT PLAY
A NEGATIVE PART EITHER BY AN IMPRUDENT POLICY OF DIVERSIFICATION
OR BY THE PUBLICITY WHICH FAILURE TO PARTICIPATE WOULD PROVOKE.
10. THE COUNCIL THEREFORE SUGGESTED THAT WE SHOULD CONTRIBUTE TO
STABILITY BY OFFERING TO MAINTAIN THE GOVERNMENT STERLING RESERVES
AT THE LEVEL RULING ON 24TH. SEPTEMBER IN THE EXPECTATION THAT
H.M.G. WOULD THEN EXTEND THE BENEFITS OF THE DECLARATION TO H.K.
IN RESPECT OF THIS SUM. IN THIS CASE IT WOULD BE UNDERSTOOD THAT IF GILT-EDGED PRICES FELL DURING THE GUARANTEE PERIOD, DEPRECIATION IN CURRENT VALUES NEED NOT BE MADE UP BY FURTHER PURCHASES OF
STERLING.
11. I DO HOPE THIS PROPOSAL WILL COMMEND ITSELF TO THE
TREASURY AS BEING THE MOST REALISTIC AND HELPFUL THAT WE COULD MAKE
IN THE CIRCUMSTANCES. IF, AS I HOPE, IT DOES, WE WOULD NEED TO WORK OUT VERY CAREFULLY WHAT WE SAID ABOUT IT IN FUBLIC.
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