our Financial Secretary and several prominent local bankers would have tried so hard to extend the agree- ment!
The Bulletin does not wish to sug- gest that a greater degree of diver- sification might not eventually be the best policy indeed, ultimately the only policy open to us. It would be foolish however to assume, as some commentators seem to do, that diver- sification is as simple to practise as it is to preach.
Attractive home
On the other hand, if the world's monetary problems can be resolved, and the wilder flights of speculation reduced, London could well continue to be an attractive home for HK's reserves at least in part. And in the meantime, both HK and the UK have vested interest in seeing sterling strong. When speculation occurs against sterling, it hurts HK as well as Britain.
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Sterling is not only a reserve cur- rency, it is also a major trading currency. Most relevantly, it is the trading currency chosen for use in its international transactions by HK's big and powerful neighbour China. Again, this point was stressed in our carlier paper; HK's banking system. provides a bridge between China and the outside world, we said. Much of China's trade is financed through banks in the Colony and until recently, was conducted in sterling, thus giving business to London.
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It has also been suggested verge once again on the political that the very fact of Hong Kong's
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existence can be attributed to its use by China as a banking centre, and particularly a sterling banking centre. The Chamber would not necessarily subscribe to this point of view (nor indeed, we believe, would the People's Republic). But the Peking/Lon- don/Hong Kong triangle has been of undoubted benefit to Hong Kong.
To put the question somewhat bluntly: did China trade in sterling because of the convenience of the facilities in Hong Kong, or did China choose to trade in sterling and then decide to use the facilities in Hong Kong? Undoubtedly most observers. would give credence to the latter point. of view. It is however fair to add that the existence of Hong Kong with its banks added fortunately if fortuit- ously to the logic of China's choice.
We mentioned in an earlier section the role of the UK in providing finance for HK industry. This was facilitated by Hong Kong's being a part of the Overseas Sterling Area. While HK was part of the OSA, there was an incentive to channel UK funds to HK, since UK investors were allowed to do this without payment of the 'dollar premium' usually required from UK residents wishing to invest outside Britain.
(The 'dollar premium' refers to the premium UK investors must pay in order to purchase currencies for overseas investment from a 'pool' of investment currencies. According to supply and demand, the premium for such purchases varies from time to time. Currently it stands at about 20 per cent.)
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