F.. 03
3
Зеликой ae clise ? винена
SECRET
21 Systemer,
around
Against
the evening before talks were resumed and Saturday evening, the
exchange rate lost 16% of its value (roughly the ground it had
value
lost against a strengthening US dollar in the first seven months of the year) to 9.575, at lowest, and 12% on the trade weighted
measure, which has a loading of
25% for the US dollar.
sterling, it fell from around HK$12.5 to HK$14.5 (as with the US$
parity, an all-time low point). Continuing Chinese propaganda on
the now familiar lines, coupled with the absence of any official
communique on the talks even describing discussions as "constructive
and useful" the term used after the two initial rounds on 12-13
July and 25-26 July will have played their part. There was also
a report in the market that the Bank of China had been selling the
local dollar heavily.
When business resumed after the weekend this week, the dollar rate
opened at 8.25, apparently on the early announcement that the
government was considering a proposal which would give the Exchange
Fund a more significant role in the mechanism of determining the
exchange rate. The subsequent raising of local prime rates from
13% to 16% (effective 27.9) by the Association of Banks, under the
suasion of the authorities, induced a further temporary recovery
to 7.88 at best. In later trading, however, these gains were shed
and in Hong Kong the rate closed at 8.40. In London it was quoted
on the extremely wide 75 cent spread of 8.25 -9.00 (mid point 8.625)
indicating the reluctance of dealers to take HK dollars in an
extremely thin and volatile market; a 5 cent or less spread is
normal. The Hang Seng Index of the stockmarket, which has lost almost
200 points (or 20%) in the course of this month, falling 130 points
last week alone, rallied somewhat on Monday despite the news of the
interest rate increase and closed 16% down on its 1 September level.