CONFIDENTIAL
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they would be inclined to give weight to the views of the Hong Kong authorities and of ourselves. But the commercial arguments would remain exactly the same and would presumably point to the same result, even though the Hong Kong authorities might well find themselves less enamoured of this possibility. would be likely, for example, that any change would attract a fair amount of local attention, but it would be more noticeable if the partner was a non-British bank. In this case the Chinese would probably want to wade into the debate. Hong Kong telegram number 1052 refers to the aspirations of the Bank of China to issue notes. Most people in Hong Kong probably see this as a question of when (and probably before 1997) rather than whether. Given the existing note-issue procedure the question of which banks should be allowed to participate (assuming they want to - the only gain is free publicity) is really only a political one. In this context it would probably be undesirable for the Hong Kong bank to be left as the sole note-issuer.
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Lifting our gaze slightly above the immediate horizon, there is a sense in which we ought perhaps to be grateful to Lloyds in that they have by their bid unwittingly made it necessary for the Hong Kong authorities to focus more sharply than they otherwise might have done on at least one aspect - albeit a relatively narrow one of future monetary arrangements.
The existing note issue procedure can function, as it has in the past, under monetary arrangements other than the present exchange rate "link". But the link cannot operate as it stands under different note-issue procedures from those currently in force; and alternative monetary options other than the link would not be crucially dependent in the existing note-issue procedure. It might be sensible, therefore, at the appropriate time to hint to the Hong Kong authorities that a broad review of future monetary arrangements might usefully include a look at note-issuing procedures.
Yours Sincerely, Учир
Синт. Санал
C D Elston