attached
Reference....
R
CONFIDENTIA Mi Hanna Banan
Карта
20
стравал
Mr Cr
8.6..
20/7
all these tapes. [26/
(Hong Kong and Indian Ocean Department K 247)
STERLING GUARANTEE
HONG KONG
1.
I promised to let you know whether my meeting with Fr Walker of the Treasury on the morning of Tuesday 23 July went on the lines discussed between us.
2. I am reasonably confident that the Treasury will recommend that we should not quibble with Hong Kong on the question of their "topping up" purchases and the definition of elegible balances. As I told you, I believe Mrs Denza's first reaction was that Hong Kong were probably in the wrong on this but thanks to her intellectual efforts in putting all the arguments she could think of for both sides and the line we have taken with the Treasury that if there was reasonable doubt about the clarity of our exchanges with Hong Kong and grounds for believing that they had acted in good faith we should not reopen this sensitive question I think Mr Walker has accepted that we should quietly pay up.
fermly
3. The second point at issue, the 10 per cent deduction, is rather different. The Treasury are convinced that their way of looking at it is definitely' right and Mrs Denza's advice (her letter of 22 July to Mr Jones) supports this. In these circumstances I do not think that at this stage we can argue that the Treasury should not instruct the Bank to explain to Hong Kong how we make our calculations.
4. Contact so far has been on banking lines and I agreed that for the time being it should continue on those lines. The Bank will therefore get in touch with Hong Kong explaining why our calculations for the 10 per cent are different and telling them that we are now paying over the money we consider due to them. At least this means there is no further delay in receiving this money. If they feel inclined to argue with our calculations of the 10 per cent deduction they will presumably do so.
I have said that the Bank must be instructed to inform us as soon as they receive anything further from Hong Kong. We can then look at their arguments, if there are any, and see whether there are grounds for changing our own attitude. We can also then decide whether any further exchanges should be through our channels.
5. I suspect in all this that the Bank of England once again are at fault and may have misled a customer on a technical point on which they have not bothered to consult Treasury. They may therefore argue about the
reasury line. However, even if, at a technical level, they have given wrong advice to Hong long this will only have been after the event. As Mrs Denza says, there is no indication that Bank of England communications have in any way induced her to act to her detriment. I think therefore we must recise that the Treasury are bound to put the calculations 'ight. They are after all respnsible to the British taxpayer and the PAC.
CONFIDENTIAL
/6.