No clear answer to this emerged and the 50% figure did not reappea in any of our later discussions.
4.
I then explained to Mr Haddon-Cave that Ministers really did have an open mind on what the post-March arrangements might be. They might decide to offer no guarantee at all or they might think it best to propose new guarantees in return for the acceptance of obligations to hold specific amounts of sterling. I noted his ideas of a basket but pointed out that even if we wanted to go down that road an appropriate basket would not be easy to construct in the short time available, and I did not see (admitting the uncertainties about the future course of exchange rates) why a dollar guarantee should necessarily be unattractive. If we did decide to offer a guarantee, what sort of HSF did Hr Haddon-Cave think would be appropriate? The answer to this was that it would have to be lower than the figure (78.85%) which the Hong Kong Government had proposed should apply to the current unilateral declaration. No figure (that of 50% having, as I say, disappeared from the discussion) was mentioned, but Hong Kong's general intentions regarding reserve management appeared to be as follong
Wcle
5. Her substantial holdings of gilt-edged (including local authority securities) provide about 7% of the Golony's revenue, and partly for this reason, and partly because of the large losacs he would now suffer on realisation, the Government wes on balance
unlikely to sell gilts on any scale for the time being. On the other hand if it appeared that sterling was likely to continue to depreciate, Hong Kong. might prefer to cut some of her losses, move part of her reserves out of sterling and accept lower intors! rates from elsewhere (in practice mainly the United States: the prospects of getting into, eg, Deutschemark securities were very restricted). There was in any caso a need to build up the Exchange Fund, where at present the assets were inadequate to cover liabilities. This could be done by investing accrued interest, but probably not in sterling, since generally it was thought that the Colony ought not to be as deeply committed to sterling as she now is. This latter view was, I judged, taken partly for reserve mangement and partly for domestic political rem ac.