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THE RESULTING LOSS OF REVENUE.
STATE'S APPROVAL IS REQUIRED).
(THE SECRETARY OF
4. THE GOVERNOR BELIEVES THAT EXCO MIGHT POSSIBLY BE OPPOSED
TO HIS PROPOSALS. THE SCHEME WOULD PLACE THE BANKS IN THE
FRONT LINE. THE BURDEN OF HIGHER INTEREST RATES WOULD FALL ON
BORROWERS, NOTABLY HOME BUYERS AND SUCH HIGHLY-GEARED COMPANIES
AS THOSE IN THE DISTRESSED PROPERTY SECTOR. IN THE GOVERNOR'S
VIEW PRESSURE ON THE BANKS AND ON INTEREST RATES WOULD BE
PREFERABLE TO PRESSURE ON THE EXCHANGE FUND AND THE EXCHANGE
HE WOULD PUT THIS VIEW STRONGLY TO EXCO, AS WELL AS
THE POINT THAT SUCH AN ARRANGEMENT WOULD HELP HMG'S STANCE
IN THE NEGOTIATIONS. HOWEVER, EXCO MIGHT NOT AGREE, SINCE
BANKING AND PROPERTY INTERESTS ARE STRONGLY REPRESENTED AMONGST
THEM.
RATE.
5. THE GOVERNOR IS EMPOWERED TO ACT IN OPPOSITION TO THE
ADVICE GIVEN TO HIM BY EXCO IF HE DEEMS THIS RIGHT BUT HAS
TO REPORT TO THE SECRETARY OF STATE ON THE GROUNDS AND REASONS
FOR HIS ACTION. HE WILL THUS BE SEEKING POLITICAL BACKING
VIS-A-VIS EXCO MEMBERS RATHER THAN FORMAL AUTHORISATION TO
PROCEED. BUT IT IS HIGHLY UNUSUAL FOR THE GOVERNOR TO ACT
AGAINST THE ADVICE OF EXCO. WE CANNOT FIND ANY PRECEDENT FOR
THE PAST 20 YEARS.
6. THE GOVERNOR IS VERY CONSCIOUS OF THE SIGNIFICANCE AND
DIFFICULTY OF SUCH A STEP NOW. CLEARLY IT WOULD HARM HIS
RELATIONSHIP AT A PARTICULARLY AWKWARD MOMENT. HOWEVER HE
ONLY INTENDS TO ACT AGAINST EXCO'S ADVICE IF THE FINANCIAL
POSITION MAKES THIS ABSOLUTELY NECESSARY AND AFTER EVERY EFFORT
TO PERSUADE THEM.
ARTICLE 4 OF THE
7. THERE IS ONE POTENTIAL LEGAL DIFFICULTY.
EXCHANGE FUND ORDINANCE REQUIRES BANKS TO PAY TO THE FUND THE
'FACE VALUE' OF CERTIFICATES OF INDEBTEDNESS, EXPRESSED IN
HONG KONG DOLLARS. THE PROPOSAL HOWEVER IS THAT BANKS SHOULD IN
i FUTURE BE REQUIRED TO PAY IN US DOLLARS. HOWEVER, THE HONG KONG
GOVERNMENT AND ITS LEGAL ADVISERS DO NOT SEE ANY IMMEDIATE NEED
FOR AMENDING LEGISLATION.
8. IN THE RATHER UNLIKELY EVENT OF A LEGAL CHALLENGE THE
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