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excellently now that the People's Bank of China is involved). Mr Galsworthy apparently doubts the timeliness of this. the past the Chinese have questioned the need to make inessential changes, but there are good management reasons for making the changes before Mr Nendick makes his - exit at the end of the year.
Note-issue
delayed
9. Standard Chartered (15%) may decide pre-1997 they would like to opt out of the new responsibility of being a note-issuing bank. They are a net receiver of notes and are currently losing out on the exchange rate. But the Chinese were surprised and delighted to have a green light on Bank of China becoming a note-issuer. A paper on this is now going to ExCo. I wonder if we have earned enough credit with the Chinese for this move. The Chinese have agreed the design of transitional notes: if they are introduced in 1993 there should be few old notes left by 1997.
US Dollar Link
10. Nobody even contemplated breaking the link, despite the short term difficulties it caused for monetary policy. The Financial Secretary's arguments in his budget speech seemed to be accepted - it was too important for maintaining confidence and not the cause of inflation. The Chinese were supportive. The US could say things before 1997 which would cause difficulty, but this was unlikely in view of the excellent - and carefully cultivated US/HK trade relations.
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11. The HKG had contingency plans if the link came under pressure. First steps in a crisis could include raising interest rates very high, restricting bank deposit withdrawals.
RAB
R A Burns
EM8AAJ
CONFIDENTIAL