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34
XCS(74)1
4
If full compensation had been payable, it would have been on the end-March figures; so Hong Kong's compensation will have been reduced by about £0.4 million. As we pointed out in the message quoted in paragraph 3 above, it was clearly not possible, as a practical matter, for us to conform to any interpretation of the accidental breach provision other than our own. This is because the exact market value of Hong Kong's reserves at any particular time cannot be ascertained immediately as our agents abroad have discretion to switch assets and usually take some days or even weeks to send statements; and a fall in gilt prices on the last working day of a month in London can put us unknowingly in breach after we have gone to bed. It seemed to us, from the exchange of telegrams mentioned in paragraph 3, that it had been accepted that we were unable to guard against accidental breaches due to falls in gilt prices. However, we were mistaken in this and protracted agrument by telegram with London has failed to secure agreement.
A
The New Guarantee
(a)
7
Introduction
Hong Kong was advised on 14th March that the British Government had decided to offer an extension to the end of December ⚫ this year of the previous unilateral guarantee, on broadly similar terms. In the light of the reduced prospect of new international arrangements with respect to reserve currency holdings, and the immensity of immediate uncertainties of the international economic and financial situation, the Chancellor judged that there was little prospect of countries wanting to make binding commitments in the longer term. An official announcement was made in London on 15th March, setting out the main features of the new offer; and the formal Declaration, reproduced at Annex A, was received in Hong Kong on 30th March. At that time, exchanges of telegrams with London were continuing on the "topping-up" issue, and as the new Declaration contained virtually identical provisions with regard to accidental breaches, it was difficult to make an assessment until these exchanges were concluded.
(b) Terms
8
The terms of the new Declaration, in comparison with the previous one, are as follows:
(a)
holdings by local banks of sterling securities as cover for their fiduciary note issues, which qualified (by an oversight) for the guarantee under the previous offer, are excluded from the new offer. Their value was £8.6 million at the end of March. Calculations given below in this paper are adjusted accordingly;