SECRET
3. THE EXTENSION OF THE 25% REQUIREMENT TO SECURITIES PAYABLE IN OSA CURRENCIES PUTS ALL FOREIGN CURRENCY SECURITIES (NSA AND OSA, ON THE SAME BASIS FOR THE UK INVESTOR. SINCE JUNE 1972 (MIEN UK EXCHANGE CONTROL WAS EXTENDED TO THE OSA) OSA SECURITIES HAVE BEEN IN A FAVOURED POSITION BECAUSE UK INVESTORS COULD SWITCH FROM ONE SECURITY TO ANOTHER WITHOUT INCURRING THE 25% SURRENDER RULE. THIS SITUATION HAS NOW BEEN RATIONALISED.
4. THE EFFECT OF THE 25% REQUIREMENT WILL BE TO BRING ABOUT A MEASURE OF DISINVESTMENT SINCE UK INVESTORS SELLING A SECURITY PAYADLE IN AN OSA CURRENCY WILL HAVE TO SELL ONE-QUARTER OF THE PROCEEDS IN THE OFFICIAL FOREIGN EXCHANGE MARKET, THE REMAINING THREE-QUARTERS PEING AVAILABLE FOR REINVESTMENT. BUT SUCH DISINVESTMENT NEED NOT BE IN THE OSA. THE REQUIREMENT WILL BE SATISFIED BY THE SALE OF ANY INVESTMENT CURRENCY AND UK INVESTORS
WILL THEREFORE BE ABLE TO RETAIN WHATEVER PROPORTION OF OSA SECURITIES IN THEIR PORTFOLIOS THAT THEY WISH.
5. OSA COUNTRIES STILL RECEIVE FAVOURABLE TREATMENT UNDER UK EXCHANGE CONTROLS COMPARED TO NSA COUNTRIES, IN RESPECT OF GIFTS (C1800 PER DONOR PER YEAR INSTEAD OF £308 TO THE NSA), INITIAL OFFICIAL EXCHANGE ALLOWANCE FOR UK ENIGRANTS (£23,000 PER FAMILY INSTEAD OF £5000 FOR NSA), AND IN THE MUCH GREATER SCOPE FOR UK BANKS TO LEND STERLING TO OSA BANKS AND INDIVIDUALS.
6. THE TEXT OF THE FULL TREASURY PRESS NOTICES ANNOUNCING THESE EXCHANGE CONTROL MEASURES WILL BE SENT TO YOU IMMEDIATELY AFTER THE BUDGET.
CALLAGHAN
NO DISTRIBUTION
HD FRD
MR MARSHALL
COPIES TO
PS TO CHANCELLOR OF EXCHEQUER
MR D J MITCHELL
MR T U BURGNER MR E B BENNETT
}
TREASURY
BANK OF ENGLAND
2.