CONFIDENTIAL COVERING BLCHLT
Fink.
RE
IN
R&
Mr Herd (conomists Department G 71B/G)
2 2 APR 1977
HKK 102,
TRE
HONG KONG GOVERNIAT INVUTKUNTU
Thank you for your zinute of 14 March în
#6 mine of
1. 24 February (headed "Hong Kong: Investment in outh african Stocks").
2.
Before drafting an informatory submission to Lord Goronwy-Roberts I should be grateful if you or Pki, as appropriate, would clarify the following points.
when the hong kong Government began diversifying their reserves out of sterling
3. You say in paragraph 2 of your minute that liong Kong began their policy of diversification in 1972. On the other hand, paragraph 1 Flag of Hong kong telegram No 589 of 9 June 1976 stated that "Up until
late 1974 when the Sterling Guarantee Arrangements came to an end, the bulk of the liong kong Government's external reserves was held in sterling , during the past 18 months, a degree of diversification into other currencies has taken place" There is not necessarily a inconsistency here: the fact that the "bulk", not all, of the external reserves prior to November 1974 were held in sterling may mean that some deliberate diversification may have taken place prior to that date. slowever, to the uninformed reader It sounds as though the policy of diversification did not get under way until after November 1974. Can you please tell me what the authority is for the statement that the policy of diversification degan in 19727
L'ART
Flag B
(9)
Value of Reserves held in sterling
4.
K
I am personally surprised to learn that diversification has proceeded so far that even by the beginning of 1976, which was only 14 months after the Sterling Guarantee Arrangements came to an end sterling represented only 27 of Hong Kong's reserves. I had understood from what the Hong Kong Financial becretary told me last summer see paragraph 1 of my minute of 16 July 1976 - that sterling then represented 70. of liong Kong reserves. Evidently, i misunderstood the si,nificance of the percentages fir Haddon-Cave gave me and my colleagues in AD, to whom I have mentioned your figure, are not curprised by it. ven so I should be grateful for any light you can shed on the apparent discrepancy between what the Financial Secretary told me and the figure you have supplied.
Hong Long Government's current policy
5. I think it is the first time that we in HKD have been made aware that the Hong Long Government's "current policy" is to hold 30% of its assets in sterling and that, as you say, they will have to diversify further out of sterling in order to arrive at thie figure. Can you confirm that the Treasury/Bank of England are aware of this policy and that they have raised no objections to it? I assume from what the Financial Decretary told me that they are in the picture but I should like to cover the point in drafting a submission.
CAMFIDENTIAL COVERING DLCHET
/The Figures