NOTE FOR THE RECORD
CONFIDENTIAL
2F(RMSA) 120/91/01
For Information:
Mr Walker
Miss Pestell)
FCO
Mr Cronson
Mrs Denza
STERLING GUARANTEE:
HONG KONG (IMPLEMENTATION)
The statement for Hong Kong enclosed with Mr Payton's letter of 25 June to Mr Walker reports eligible balances deemed to be for 29 March 1974 which appear inconsistent with the modified settlement basis set out in FCO telegrams no. 309 of 26 March, no. 314 of 27 March and no. 358 of 10 April.
2. The modified settlement basis, as set out in FCO telegram no. 358 is
as follows:
3.
For the purpose of calculating the balances eligible for guarantee on the last working day of March 1974, official
sterling reserves will be deemed to consist of the amount
of actual holdings on that day or the amount held on 28
February plus the sterling interest received during March which is maintained in sterling plus the sterling which, in accord- ance with your interpretation of the accidental breach provision, was purchased during March in order to comply with the provision, whichever is lower.
For this purpose,
valuation of the holdings on the last working day of February and of any sterling purchased during March will be at current market prices on the last working day of March.
The Hong Kong interpretation of the accidental breach provision
has been taken to mean that sterling is purchased during a month equal to the deficency at the end of a preceding month after account has been taken of expected interest accruals in sterling. This understanding of "topping-up" requirements is consistent with Hong Kong telegram no. 375 of 27 March, which prompted our explicit mention of interest accruals in FCO telegram no. 314.
4.
According to tables supplied by the Bank, Hong Kong's deficency
1.