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Cutting dated
SUNDAY TIMES
16.12
Hong Kong signs sterling deal
Hong Kong has been a major seller of sterling in recent weeks and is likely to continue to sell on a smaller scale in the weeks ahead. This startling and un- expected threat to the pound from the Crown colony is behind a new and apparently anodyne agreement announced yesterday between the Hong Kong and UK governments.
The new agreement simply modifies the old guarantees given for Hong Kong's sterling balances against exchange depre- ciation in the British pound. From now "ntil the end of March, only the official holdings, that is the Hong Kong govern- ment's will be guaranteed, at a rate of US $2.4313 to the pound. Previously, local banks holdings were also guaranteed.
The new modification, arrived at after months of talks. at times extremely strained, acknowledged the fact that Hong Kong was dis- satisfied with the old terms and has acted in its own interests.
Under the old terms. Hong Kong was supposed to keep 89% of its previous balances in ster- ling in exchange for their guaran- tees. Official holdings were duly run down, it is understood, by the agreed amount. But in addition, local Hong Kong banks sold out their private holdings of sterling.
This selling, it is thought, brought the proportion held in sterling down to nearer 60% and the new agreement acknowledges that these private holdings are no longer significant.
However, Far East sources i suggest that the officially held reserves may also have been run down recently. As а resuit, Hong Kong's sterling reserves, in current terms, may have fallen from £700m to nearer £350m.
This selling represents a major rift between the UK and the Crown colony and its respected Financial Secretary Philip IIad- don-Cave. Hong Kong was one o the most important holders of sterling and its sales must have been significan in the downward drift of the pound. There have recently been substantial sales of forward sterling and this explains the historically large discount at which forward ster- ling is now being sold.
Danlimentai,
17
1973
Mr stupal (HKIOD)
RECEIVE
PA
20DEC13
2
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