D./
Conclusions
If mard
seen Ander! behavior, and Leave, to be
botten ret
table A overle of
CONFIDENTIAL
19. It is not surprising that in the absence of complete balance of payments statistics, the measures sometimes used are
found wanting. In the event of generalised fears about the
solvency of the Territory's financial system the net foreign
currency asset measure would show widespread attempts to
transfer foreign currency deposits to banks abroad.
20. It is possible to imagine flight from the HK$ without
flight from Hong Kong, though this is perhaps unlikely. Given
that capital account statistics will not be collected (indeed
it is a fundamental part of the nature of the Territory that they
are not), what should be watched?
21.
The dynamic growth of Hong Kong, its movement to more
technologically advanced production, depends on fairly high levels of investment, financed both from internally generated profits
and also from abroad. A slump in investment as a result of fears
for the future would ex post
indicate lower capital inflows, and
higher capital outflows.
22. Pressure on the HK$ could indicate wishes to invest abroad,
and falling capital inflows, as well as attempts to hold assets in currencies seen as less risky, though it should be noted that
inflation in the Territory at present is considerably higher than
in its major export markets and some weakening should be expected
on this account.
CONFIDENTIAL
-5-