SECRET
FM HONG KONG
TO IMMEDIATE FCO
TELNO 175
OF 20105OZ JANUARY 92
453/1
SECRET
Hh&B lall
Nu stone
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INFO PRIORITY PEKING, UKREP JLG HONG KONG
14
015572
MDHIAN 9894
Cd I see the rel at para 3 pse
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Mr Xx
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PERSONAL FOR RICKETTS, HKD.
PEKING PERSONAL FOR AMBASSADOR. UKREP JLG PERSONAL FOR PAUL.
6
YOUR TELNO 60 AND PEKING TELNO 7: DISCLOSURE OF THE SIZE OF THE EXCHANGE FUND,
SINCE YOU INTEND TO CONSULT THE BANK OF ENGLAND AND TREASURY, AND POSSIBLY MINISTERS, YOU MAY FIND IT HELPFUL TO RECEIVE THE RELEVANT EXCHANGE FUND ADVISORY COMMITTEE PAPERS WHICH SET OUT THE DETAILED ARGUMENTS FOR AND AGAINST DISCLOSURE AND THE PROPOSED FORMAT FOR PUBLISHING THE INFORMATION. THEY ARE BEING SENT TO YOU VIA CONFIDENTIAL FAX.
2. WE CONFIRM THE ASSUMPTION IN YOUR PARA 2, NAMELY THAT WE CANNOT THINK OF ANY WAY IN WHICH IT WOULD BE POSSIBLE TO HIDE THE TRANSFER OF SIGNIFICANT FUNDS FROM THE EXCHANGE FUND INTO THE GENERAL REVENUE OR TO OTHER FUNDS OF HKG. FURTHER, IT COULD BE ARGUED THAT, SHOULD THE NEED TO TRANSFER UNDER SECTION 8 ARISE IN THE FUTURE, TRANSPARENCY IN THE SIZE OF THE FUND WILL FACILITATE RATHER THAN INHIBIT US FROM DOING SO. IF THE PUBLIC IS KEPT IN THE DARK REGARDING THE EXACT SIZE OF THE FUND, ANY PROPOSAL TO TRANSFER A SUBSTANTIAL AMOUNT FROM THE FUND IS LIKELY TO AROUSE UNFOUNDED FEARS OR CONCERNS THAT IT WOULD DEPLETE THE FUND TO AN UNACCEPTABLE LEVEL, THEREBY UNDERMINING THE CONFIDENCE IN THE STRENGTH AND STABILITY OF THE LOCAL CURRENCY. IF THE SIZE OF THE FUND IS ALREADY PUBLISHED INFORMATION, THE PUBLIC AS WELL AS THE FINANCIAL SECTOR WILL BE ABLE TO MAKE A RATIONAL AND BALANCED ASSESSMENT OF THE MERIT AND LIKELY IMPACT, IF ANY, OF SUCH TRANSFER.
3.
ON PARA 3 OF FIRST TUR, YOU MAY RECALL THAT WHEN FS VISITED PEKING IN NOVEMBER LAST YEAR, LU PING RAISED THE QUESTION OF REVEALING TO THE PUBLIC THE SIZE OF THE EXCHANGE FUND. LU COMMENTED THAT THIS HAD TO BE DONE SOONER RATHER THAN LATER BEFORE 1997 IN THE CONTEXT OF THE TRANSITION, AND THAT THE
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