CONFIDENTIAL
Commercial hypothecation
7.
Ms Brown said that the Treasury had learnt accidentally of a commercial hypothecation scheme which HKG had asked a consultant to examine. They were very interested in evaluating this option thoroughly. They saw little point in formulating proposals in London without first seeing the consultant's report, due at the end of January, which would presumably cover what could be done with Hong Kong providers. Mr Rayson commented that practicality, political acceptability and affordability were three essential considerations for any proposal. Capitalisation met the
first and third, with the second untested. The private sector proposal would seem to meet the first two criteria but they could not yet take a view on whether or not it was
affordable. They needed to identify the extent of HMG
support necessary to make it viable. Ms Brown said that commercial hypothecation could in principle achieve the same
objectives as a sterling safeguard.
8.
Mr Burns explained that we would need to advise
Ministers on what to say to head off precipitate action on
the part of the HMOCS Association, who were due to hold
their AGM on 14 January 1992. Ms Brown said that we would
have to tell the Association that matters were under
consideration. As the team had attempted to lower the
expectations of the Association, the latter would not expect
any decision by January. Mr Fish added that it could be
counter-productive for the Association to go public in
January and considered June 1992 (when HMOCS officers have
to decide whether or not to sign up for the New Pension
Scheme) as a more important date. That would mean that HMG would have to make public any arrangements by about March 1992. This point was generally agreed.
9. Ms Brown proposed that the Treasury should discuss the
option further with inter alia the Bank of England. They
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