8
A
A considerable part of the Government's
liabilities are for sterling payments, and if the
sterling exchange remains throughout 1936 at not
less than about 2/-, such a deficit would be
covered by savings on sterling expenditure.
If,
however, the dollar's sterling value were to fall,
we should have to contemplate a situation which
must be met by some emergency measures to prevent
the Government's financial position from crumbling.
In these circumstances, especially as the
emergency measures which are foreshadowed include
some emergency taxation, it is not unnatural that
the Unofficial Members of Council intend to press
strongly for the Government's sterling commitments
to be covered by a forward exchange contract.
You may remember that the Hong Kong
Government was criticized in 1932 (see 13816/33),
at a time when the future of the exchange was no
less uncertain than now, for making a forward
contract for a total remittance of £200,000 sterling
in instalments, a sum equivalent to about half the
Government's normal annual requirements of sterling.
This transaction was criticized by the Audit on the
ground that it constituted speculation with public
funds, though no doubt the criticism was in fact
largely based on the unfortunate issue of the loss
to Government which resulted in the light of the
course taken by the sterling-dollar exchange.
that occasion the Governor explained in his despatch
that it was the practice of the Colonial Government
to send from time to time considerable remittances
to the Crown Agents to keep them in funds to meet
liabilities incurred on behalf of Hong Kong: such
remittances
On