CONFIDENTIAL
Reference....
MF9/501/1
RECEIVED IN REGISTRY No. 51
18 FEB 1974
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Ir Aust
GGD
PDTD
WIAD
HKIOD
Miss Pestell
Mr Cambridge
STERLING GUARANTEES: MINOR DEPENDENT TERRITORIES
1.
Mr Jones had earlier asked me whether we would have any objection to the 10% reduction in MSP under the new guarantee being extended to the dependient territories. I said not. Mr Jones added that he expected the Bank would oppose any such idea because of the practical difficulties involved.
2.
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Mr Jones telephoned today to say that the Treasury had reconsidered the question, and thought that for a number of reasons we should not initially extend the 10% reduction in MSP to the minor dependent territories, (ie those other than Hong Kong and Belize.
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3.
It would certainly be time-consuming to draw up a piece of paper setting up the new guarantee arrangements as they applied to these dependencies if there were a reduction in MSP. At present they are oblied, they want to benefit from the guarantee, to hold all their reserves in sterling (apart from one or two special cases, which use another country's currency). Consequently they do not have a standard form of agreement in which we can simply write in a lower figure. A further point is that, irrespective of any obligations they may have under the guarantee arrange- ments, many of the territories concerned are obliged to hold at least some of their funds in sterling by virtue of their domestic legislation. In such cases the concession might therefore not be worth very much. The Bank I am sure will also argue that many of these people already find the present guarantee arrangements almost incomprehensible and that we should not risk confusing them still further.
4.
Since we shall again be giving these dependencies a guarantee on more favourable terms than that extended to major holders of sterling, in that their balances at the end of the period will be guaranteed irrespective of whether they are higher or lower than those held in beptember 1973 or March 1974, we have a perfectly reasonable explanation of why we are not riving them the reduction extended to others, which they will, of course, be generally aware of.
5.
I nevertheless suggested to Mr Jones that if we do get complaints from the minor dependencies, we should be prepared to consider them. He agreed.
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Nheidą
D I Lewty
1
15 February 1974
Financial Relations Department
/Conied te;
CONFIDENTIAL