CONFIDENTIAL
STERLING
1.
Hong Kong has participated in the sterling guarantee
arrangements since 1968. Originally both the Hong Kong
Government's own sterling reserves and those of the Hong Kong
commercial banks were guaranteed. But when the original
guarantee was extended for six months in September 1973, the
Hong Kong commercial banks had reduced their sterling holdings
to a very low level and ceased to be covered by the guarantee
arrangements. At that time the Hong Kong opinion was critical
of HMG for the losses allegedly incurred to their reserves
through the effective devaluation of sterling. But after some
hesitation the Hong Kong Government agreed to the renewal terms.
2. The Hong Kong Government have not yet responded to the
Treasury's offer to extend the guarantee by a further nine
months. The revised terms of the Agreement are however along the
lines which Hong Kong have advocated and it is expected that they
will be acceptable.
3.
In the course of these events there have been other
disagreements with Hong Kong on technical points, most recently
on whether Hong Kong have maintained the agreed minimum
proportion of sterling (MSP) in their reserves. But Sir Albert
may well be unaware of the most recent developments.
If he does
raise them, the Minister could say that this is a matter for the
Treasury.
CONFIDENTIAL