DAILY TELEGRAPH
cutting dated
NAIROBI COMMENT
19
Hongkong may pull rug
FIN.
By KENNETH FLEET
from under sterling
IT IS virtually certain I understand that
Hongkong will refuse the new terms offered them to keep the bulk of their sterling
to all sterling area countries to persuade
balances intact in exchange for a guarantee against depreciation of the pound. If Hong- kong does not accept, or if a better deal is not quickly constructed which the colony would accept, then other major holders of and sterling balances, notably Kuwait Australia, might follow suit. Renewed pressure on the pound could be severe.
The present situation is fraught with difficulties for sterling, not in the best of health as it is, and would add a painful headache for the Prime Minister as Phase Three of the Government's prices and incomes policy dawns."
Some £2,000 million of sterling is covered by the exchange guarantees originally given in 1968. Hongkong alone holds £900 million.
Under the 1968 Basle Arrangement official holders of sterling were given a guarantee for 90 p.c. of their sterling held in London that if the pound fell below $2.3760 their balances would be "topped up" to compensate them. In return holders of sterling balances agreed to keep a mini- mum proportion of their reserves in sterling.
The original agreement ran out on Sept. 24 but on Sept. 6 the Treasury hastily an- nounced an extension of the guarantees for a period of six months. The new threshold is $2.4213, with a promise of compensation if the average value of sterling falls below this level over the six months span.
The Treasury denies that the Sept. 6
statement was a hastily concocted formula to stop an ominously developing assault on the pound days before. In fact sterling opened very weak on the morning of Sept. 6 and dropped like a stone to $2.38 before the Bank of England supported it. Then the Treasury made its announcement of the extension. The selling during that morning and the day before had been prompted by the belief that no new guarantee would be given after Sept. 24 and a considerable swapping of sterling into stronger curren cies by holders of sterling balance would force the pound into the depths.
:
Improving status. of the dollar
The political situation in Hongkong' at present is cut through with anti-British feel- ing (the case of the absconding English policeman is partly responsible) and it will need an act of considerable courage for the Government there to be seen again 'toeing the sterling line. Hongkong is also acutely conscious of the consequences for sterling if it is the first to pull the rug from-under it.
When
Finance the Commonwealth Ministers met in Dar es Salaam before pro- ceeding to Nairobi for the IMF and World Bank meetings, the Hongkong Finance Mini- ster Mr Haddon-Cave pointedly left early and did not come to Nairobi. Mr Barber told me that as far as he knew the only objection expressed in Dar to the new guarantee arrangement was the Treasury's
failure to consult sterling holders before announcing the extension.
The Chancellor's view however is not unanimously held.
Cleared with day.
Guy Hans
NU Гоние!
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Sostro
The report in the Telegraph
that May Kans
pull out of Defind the
is about to
stering agreement
arragements
is pure speculation.
The Haskay for and Treasury
thicists have had Frank friendl
and constrictor discussions in
thase are contai
London & Dar and there is P