G.R.
150
I note that the Governor has suggested in paragraph 5 of his telegram that a Government announcement should be made concerning the future of the rate of exchange for the Hong Kong dollar. This is a thing to which we are most strongly opposed and which we would do our utmost to avoid. We shall need now to consider the expedient suggested in paragraph 2 of your letter of 17th December but in the meantime I must record our view that however guardedly the terms of the announcement might be fashioned you would inevitably find them being construed, or misconstrued, as a pledge for a period far in excess of what was intended and stated; and pro tanto the announcement would tie the hands of the Hong Kong Government in dealing as might become necessary with the parity of their currency in the future.
We note Morse's opinion that in the absence of some such statement local investors will be deterred from taking up the loan. It is of course natural that local subscribers should seek to obtain an exchange guaranteee, but it is impossible to say how much difference this would in fact make. We have however given a good deal of thought to other possible means of removing this uncertainty in respect of the loan itself without giving any vague or general assurances in a wider field; but have not been able to devise one which is not open to objections which would outweigh the advantages.
It is not clear from the Governor's telegram how far the sum of H.K 50 million is suggested on the assumption that the doubts mentioned in his paragraph 5 will have been removed. We must agree that the local authorities should be the best judge of the probable response in Hong Kong but should have thought that with one bank (albeit the largest) prepared to take up half the scrip, a serious failure is unlikely.
/Another