Dft.a
54126/W/49
(JUTWARD" TFLEGRAN
FROM THE SECRETARY OF STATE FOR THE COLONIES.
Cypher (C.T.P.)
No. 294 Secret
53652/44
TO HONG KONG (Sir A. Grantham)
Sent 17th March, 1949 14.45 hrs,
9.7
Your savingram No. 831 Confidential of 1948 and
paragraph 9 of your telegram No. 173.
Loans.
1. I am in greatest sympathy with your desire to encourage maximum of local investment by offering issues in most attractive form. I agree therefore that it would not (repeat pot) be wise to require registration or deposit of further issues, if other means can possibly be found of overcoming exchange control objections to bearer issues.
•
2. With reference to the suggestion in paragraph 4 of my telegram No. 1245, that bearer bonds be issued only to residents and interest and redemption be payable only to residents or persons who were resident when they purchased bonds, I note that only very small proportion of first issue was taken up by non-residents of Colony. I feel, however, that further consideration should be given to a suggestion on the above lines in light of following. fuller explanation of reasons for its desirability
3. The actual leak from issue of bearer bonds might be small, but main anxiety is that bonds wo ld be purchased with free market sterling and pressure would subsequently be brought to bear upon local exchange control by foreign holders, particularly Americans, for bonds to be serviced and redeemed in sterling at official rates. Pressure by Americans might be difficult to resist in view of non-discriminatò¬ undertakings which have been given to them. Lose of United States dollars in this way might be very serious. Furthermore, it would be possible to smuggle the se bonds out of Hong Kong and sell them at a discount to non-residents who could claim interest and ultimate repayment in Currency of their country of residentce. There is thus serious potential risk that. pereons in Hong Kong could export funds in a manne" which could not (repeat not) be effectively controlled.
4. The dangers in paragraph 3 above cald theoretically be met by stipulating that payments must be in Hor: Kong dollars only, carrying no right of transfer outside Hong Kong, but this would probably also involve discrimination in sense prohibited by American loan agreements.
5. Exchange control authorities would prefer registration or deposit but as a reasonable compromise, are willing to agree to an alternative on the lives of paragraph 2 above subject
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