FINANCIAL STRUCTURE
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years maturity, denominated in Hong Kong dollars. The rate of in- terest was per cent below the current cost of United Kingdom Treasury borrowing for seven years. These bonds were purchasable to a value of £100 million or 50 per cent of official reserves, which- ever was greater, up to an absolute maximum of £150 million. This arrangement went far to safeguarding the value of Hong Kong's reserves in terms of the Hong Kong dollar but safeguarded their international value only if it were possible to avoid for seven years a devaluation of the Hong Kong dollar.
In July 1968 with the backing of the so-called Basle arrangement whereby credits of £2,000 million were made available to Britain by the Group of Ten, Britain offered all members of the sterling area, including Hong Kong, a free guarantee in terms of US dollar value of all officially held sterling in excess of 10 per cent of each country's total official external reserves, in return for the under- taking by them to maintain a minimum proportion of their reserves in sterling (roughly the proportion existing when the offer was made; for Hong Kong this was 99 per cent). The guarantee is for five years from September 25, 1968. Hong Kong accepted this new scheme in place of the Hong Kong bond scheme. The scheme has many obvious advantages over the earlier scheme. It does, however, like that scheme, raise one problem. It applies only to officially held sterling, which represents only about half of Hong Kong's total sterling assets; a scheme was therefore being worked out towards the end of the year for bringing under the cover of the guarantee the greater part of sterling held by the banking system. When this has been done the Hong Kong dollar will be protected from the effects of any future change in sterling exchange rates so far as its capital assets are concerned. This does not mean, however, that the value of the Hong Kong dollar could necessarily be maintained if such an event was followed by substantial devaluations by Hong Kong's trade competitors to the detriment of her trading position.
BANKING
Bank deposits in the Colony increased steadily to reach a record figure of $10,367 million at the end of the year, representing an increase of 27 per cent over the previous year's figure. Loans and advances increased by $694 million, and, as a percentage of bank