17 BK ENGLAND LONDON 201 471
1
SECRET
in Hong Kong
Today (Tuesday) the Hong Kong dollar stabilised at around 8.50.
F.004
4
The Governor's cable is particularly significant in its
admission (contrary to public statements) that the government has undertaken substantial direct intervention in the foreign exchange
markets in Hong Kong, London and New York and has been borrowing in
the domestic inter-bank market to drive up money market rates. At
end 1982, probably before sizeable intervention was required, the assato of the Exchange Fund
(Comprising the backing for the local note issue
J
HK$12.6 bn
-
the proceeds of the coin issue, the government's accumulated fiscal
surpluses and accrued profits on investments), with which the
government is empowered to regulate the exchange value of the Hong
Kong dollar, amounted to US$7.3 bn equivalent to 33% of imports
-
in 1982. Assets were deployed as to 58% in US dollars (50% at end
1981), 12% in DM (12%), 12% in Hong Kong dollars (17%), 5% in
sterling (7%), 5% in Yen (48) and 7% in other currencies or gold
(11%). No more recent fiqure for the Exchange Fund's holdings is
available - accounts are published only on a yearly basis.
Indications are that between end March and end June this year foreign
exchange reserves fell by US$0.4 bn, after being virtually stable
in the first quarter. In the second quarter, with greater
volatility in the market, the loss to reserves is likely to have been
at least as great.
:
5 The immediate outlook remains bleak. The HK government has set
in train the range of measures which the Governors cable describes
but there has been little sigm (other than initial reflex responses
in the market) that the exchange has turned round to any lasting
extent. Additional measures to restore confidence or restrict the
widespread switching out of Hong Kong dollars may be appropriate.
annexe attached examines some of the options available.
The