SECRET
5
- 3
XCS(74)1
So London considered that Hong Kong has been in breach
of the agreement. It was recognised, however, that Hong Kong had acted in good faith, and that our actions had not undermined the purpose of the guarantee; but Her Majesty's Treasury, we were informed, were prepared to pay compensation only on an arbitrarily reduced basis, as follows:
6
"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 28th February plus the sterling interest received during March which is maintained in sterling plus the sterling which, in accordance with your interpretation of the accidental breach provision, was purchased during March in order to comply with the provision, whichever amount is the 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.
Using provisional figures, this settlement basis gives the following results:
End-February holdings, plus March interest accruals, plus March "topping-up" of end-February
position, all at end- March valuations
End-March holdings
£ million
£ million
Total official
external reserves
394
394.7
Official sterling holdings
298
309.2
Eligible balances
(OSH less 10% of TOER)
259
269.7
Compensation
(Eligible balances
0.0878
X
)
2.3335
9.7
10.15