2 -
00186
162
(see note below 70
in /45)
question of the responsibility for the issue of the duress notes and of those notes which had been signed but not legally issued before the Japanese seized them. The representatives of the Bank maintain that,in the circumstances in which these notes were issued by the Japanese, responsibility for meeting them fell not on the Bank but on the Government as successors to the Japanese Government. The Colonial Office representatives, however, did not accept this view and the point was not pursued to any conclusion.
Mr. Caine then said that he would be prepared to recommend two modifications to the arrangements informally
proposed to Mr. Morse which he hoped might make it possible to reach agreement between the Bank and Government. These modifications were:-
(a) In view of what the representatives of the Bank had said about their position, he felt that, starting from the suggestion that the liability should be shared between the Bank and Government on a fifty-fifty basis and leaving the exact proportion to be settled later, it would be reasonable, since the burden which would be thrown on the Bank was to be the main issue, that subsequent modification should not be to the Banks disadvantage. In other words, he would be prepared to recommend that 50% of the loss should be the Bank's maximum liability, and not 75% as suggested to Mr. Morse.
(b) He would also be prepared to recommend, if this would make things easier for the Bank, that a part only of the loss agreed to be contributed to the Bank should be made by the Bank in the form of the deposit of sterling with the exchange fund and a part by an increase, authorised by legislation in Hong Kong, in the Bank's fiduciary issue. For example, if the total amount of duress notes were taken as £7 million and £2 million of this was found to have been used in the repayment of deposits (and therefore a liability solely of the Bank), the remaining £5 million might be met in the following way:- £4 million by the issue of a Certifi- cate of Indebtedness against which the Bank would be required to deposit sterling to the value of £1 million and £1 million by an increase in the Bank's authorised fiduciary issue.
Mr. Caine then explained that a solution on the lines of (b) above had not been put to the Treasury whose concurrence would be required. If, however, the representatives of the Bank thought the idea worth considering, he would consult the Treasury about it and see if they would agree.
a
It was agreed that the Bank would consider the solution
on the lines suggested by Mr. Caine and that simultaneously he, for his part, would consult the Treasury.
7.5875.
6th February, 1946.
cms
Ref.:
CO 537/1369
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