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HKK 10017.
AUCEL
Mr Donald
PS/PUS
мо і тит
1983
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2 OF 2
FROM: RD CLIFT, HIKD
109
Sea(110
DATE: 12 December 1983
HONG KONG: FINANCIAL CONTINGENCY PLANNING
1.
At the Governor's request we arranged for Mr D Blye, Secretary for Monetary Affairs, to see the Treasury and Bank of England during his short leave in the UK.
2.
He saw Bank of England and Treasury officials on
5 December and the Treasury again on 7 December. On the second day he had a meeting with Mr G Littler in the Treasury.
The
3.
saw Mr Blye on 7 December and have also spoken to Mr Peretz in the Treasury who has been handling the visit. Governor's objective was to think ahead to possible breakdown in the talks or other political crisis which might seriously affect the Hong Kong dollar and override the present linkage with the US dollar, which is still holding up. A concern in Hong Kong is that if things turn bad the strain under the present system would be borne on interest rates. This would particularly affect the property market, already hard-hit, and could deal a severe blow to major institutions, such as Hong Kong Land, which is already in deep trouble. This could cause
a very serious blow to confidence. Mr Blye's remit was to discuss this possibility with the Bank of England and the Treasury and in particular to consider two possible alternatives:
(a)
Imposition of exchange control;
(b) Direct linkage of the Hong Kong dollar to sterling.
4.
Mr Blye found the Bank of England and the Treasury generally sympathetic but understandably wary. On exchange controls, Mr Blye made the point that Hong Kong could not engage in any contingency planning on their own. News would leak and confidence would be hit. He therefore asked whether the Treasury or Bank might be able to help with contingency plans. There is apparently only one man left in the Bank who knows about exchange controls and Mr Blye has seen him. But it would obviously be very difficult for proper plans to be prepared in London. link to sterling the Treasury's initial reaction was one of great reluctance to envisage HMG baling Hong Kong out. They noted in particuhr that it would be difficult to be seen simply to be propping up the Hong Kong property market. Mr Peretz has told me that they will however be thinking about the problem.
On a
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