CONFIDENTIAT
RECEIVED IN
REGISTRY No.47
31 JUL1974
MFG/393/1
S J G Cambridge Esq Foreign Commonwealth Office LONDON
SWI
51 JUL
432
1974 know
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Treasury Chambers develop mut-
Parliament Street
London SW1P 3AG
Telephone 01-930 1234 ext
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MULOD Onlin
2F(RMSA)120/91/01
31 July 1974
L
Dean Cambridgt
HONG KONG : IMPLEMENTATION OF
6 MONTH GUARANTEE
I enclose with this letter a copy of a letter from Payton of the Bank with the supporting documents to which his letter refers. We need to consider how to respond to Hong Kong, and it would not be surprising if we heard from them on the official net before much longer. The purpose of this letter is to seek FCO views and, in particular, to suggest that it might be useful to have a second opinion on the legal question.
2.
The substantive question is, I think, whether the definitions of "total official external reserves" and "official sterling reserves" are related. The Bank argue that there is necessarily a relationship because it is logical that there should be, because of precedent in the administration of the Agreements and the Declarations hitherto, and because they take a different view of the law from that offered by the FCO legal advisers in Mrs Denza's letter of 22 July.
3. We have not denied the appeal in the Bank's argument based on logic. But I am doubtful whether a point of logic in isolation would oblige us to interpret on this issue in the manner most favourable to Hong Kong. As to the matter of precedent, I doubt whether there is a relevant precedent given that we have not applied a modified settlement basis of this sort in any other case. The question would seem to me, therefore, to boil down essentially to a point of law.
11
4. On this, the modified settlement provision was devised solely and exclusively to "deem" an artificial figure for official sterling reserves "for the purpose of calculating the balances eligible for guarantee .. (I refer to our telno 358 to Hong Kong of 10 April). It seems to me, as a layman, that the modified settlement provision did not modify other features of the Declaration framework, and it was certainly not intended to do so. But the Bank have, very reasonably," whether the final sentence of the definition of "official sterling reserves" in the 1968 Agreement ("and which are included in total official external reserves") does not in some sense establish that OSR and are necessarily related.
TOER