1
S W Payton Esq CMG Bank of England Threadneele Street London EC2R 8AH
Dear Payton
NEW UNILATERAL GUARANTEE
Shoban oth karly
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Treasury Chambers
Parliament Street
Reef avalibu London SW1P 3AG
Telephone 01-930 1234 ext
Mr. Cafrom.
8 March 1974
theres I think, no
20
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question of making
if possible for the commercial bank's
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oferling
To the readyfitted to the quarantee. Neither HMMG wat the HK your wand this. But whether the ith your had kept sefactiond their
starting on deposit in HK ommor in the past it could had to regrimmation
we
were
their own
Leenally he
possibility HONG KONG | think we would be best advized fo
mrick to the cision suggested in the Cambridge
In his letter of 7 March, John Cambridge suggests that the new Declaration for Hong Kong should contain the wording of the existing Declaration relating to sterling held locally in Hong Kong.
2.
lette
We spent a good deal of time negotiating a new arrangement
An essential with Hong Kong based on the September Declaration. feature was that the sterling held by the commercial banks should no longer be regarded as part of the Colony's reserves or be eligible for guarantee. I think we would resist strongly any suggestion that somehow the sterling belonging to the commercial I am banks should be re-admitted to the guarantee arrangements. also doubtful whether, by drafting the Declaration in such a way as to prevent the commercial banks sterling being re-admitted to the guarantee, we could be reasonably accused of "depriving" Hong Kong of any privilege which they at present enjoy.
3. My present view is therefore that we should exclude the provision for locally held sterling from the new Declaration and that there is no need for consultation beforehand on this point with Hong Kong as the FCO suggest.
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4. However, it may be that the provision for locally held sterling is of value to Hong Kong for reasons unconnected with the old arrangement involving the commercial banks. Hong Kong would have a legitimate cause for complaint if, in seeking to exclude the commercial banks sterling from the new Declaration, we inadvertently deprived Hong Kong of a facility potentially useful for other purposes. This is a point upon which the Bank has the greatest expertise and I am therefore copying the letter to Peter Rackham.
5. I am doubtful whether, apart from the point in the previous paragraph, any legitimate complaint could be mounted by comparing the situation in Hong Kong with Abu Dhabi.
6. I am sending copies to Cambridge, Aust, Crowson and Rackham.
Yours sincerely
W L ST CLAIR