CUTWARD
TELEGRAM
Aft.. 54126/4/49
FROM THE SECRETARY OF STATE FOR THE COLONIES,
Cypher (C.T.P.)
TO HONG KONG (Sir A. Grantham)
No. 294 Secret
Sent 17th March, 1949
14.45 hrs.
46
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 post attractive form, I agree therefore that it would not (repeat, Dot) 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.
Zie vo
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 propertion 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.
36 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 resiso in view of non-discriminato~ undertakings which have been given to them, Lose of United States dollars in this way might be very seriouse Purthermore, it would be possible to smuggle these bonde 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 potensial risk that persons in Hong Kong could export funde in a manner which could not (repest not) be effectively controlled.
4. The dangera in paragraph 3 above "ould theoretically be met by stipulating that paymente must be in Hong Kong dollars only carrying no right of transfer outside Hong Kong, but this would probably also involve discrimination in sense prohibited by Americon lean agreements,
5. Exchange control authorities would prefer registration or deposit but as a reasonable coapromise, are willing to agree to an alternative on the lines of paragraph 2 above subject