CONFIDENTIAL
provision in paragraph 2 of FCO telegram no. 1209 of 26 November 1972, However, an apparent acceptance of the modified settlement basis was contained in Hong Kong telegram no. 422 of 11 April: "To pursue this argument further would be pointless, and we suggest that the Treasury, now pays compensation as they propose." Hong Kong telegram no. 467 of 27 April implied a desire on the part of EXCO to reopen the matter of implementation under the six-month guarantee but the point was not explicitly pressed and we ignored it in our reply (FCO telegram no. 471 of 17 May). The matter has not been raised in subsequent telegrams (Hong Kong telegram no. 594 of 3 June and FCO telegram no. 579 of 19 June).
Payment to Hong Kong.
9. We are disposed to accept the Bank's advice that we should not require the Bank to obtain the agreement of the Government of Hong Kong on the amount payable before payment is made. Such agreement is required under the terms of the Declaration for the payment of any amount due under it but the payment likely to be made will be under the terms not of the Declaration but of the modified settlement basis. (The status of arrangement was discussed in a letter from Mr Aust to Mr Walker of 22 March). An additional relevant factor is that formal agreement on the part of the Hong Kong Government might require the reopening of the matter in the Executive Council.
Other Matters
10. Other matters relating to the implementation appear to be in order. Exchange conversion and security valuation are on the required market basis. Sterling holdings reported locally in the standard advices have been verified by comparison with figures provided by London depositaries. As Mr Payton points out in his letter, the normal verification is not possible for sterling reported under the modified settlement basis. However, additions to the February position reported by Hong Kong are consistent with the rise in March in cash holdings reported by depositaries and the unchanged end-month figures at nominal show that these sterling purchases were not accompanied by sales of securities.
FK JONES
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5 July 1974