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Thursday, July 6, 1972
Thirdly, a floating rate results in continuous uncertainty for
traders as regards the rates of exchange at which they will be contracting
business. In Hong Kong's circumstances, where most manufacturers produce to
order for overseas markets and incur large import commitments for raw materials,
these difficulties would be especially marked.
Mr. Haddon-Cave revealed that, in the course of a detailed and intensive
review of all the courses open, the Government gave serious consideration to
the possibility of revaluing the Hong Kong dollar immediately to a new fixed
rate with sterling. But this involved the difficulty of choosing a rate which
would be considered realistic in relation to the movements of the sterling
float. If too low a rate were picked in relation to sterling the Hong Kong
dollar would again be pulled down in relation to other currencies by the movement
of sterling. On the other hand, if too high a rate were chosen, the Hong Kong
dollar might even appreciate against other currencies and thus make our exports
uncompetitive in overseas markets.
Most Convenient Method
"Furthermore", he said, "if this course were adopted the Hong Kong
dollar would still continue to fluctuate, at the new rate, in response to the
movements of the pound sterling in relation to the U.S. dollar". So there would
be continuing uncertainty.
"In all the circumstances", the Financial Secretary continued, "the
Government has decided that the most convenient method of getting through the
period of the floating of sterling would be to establish a new fixed rate of
exchange with the U.S. dollar. This will provide stable exchange rates with
countries with which Hong Kong conducts almost nine-tenths of its trade while
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