4
Wednesday, August 2, 1972
The first difficulty is that the Agreement needs to be reinterpreted with regard to its applicability in a situation where sterling is floating
rather than being aligned on a new fixed rate in relation to the U.S. dollar,
he said.
The second difficulty, he said, arises from the fact that, as
part of the package negotiated at the time of the realignment of major world currencies in December 1971, sterling retained its existing gold parity and thus revalued against the U.S. dollar to a rate roughly equal
to £1 = US$2,60.
"At the same time, the guarantees under the Sterling Guarantee Agreements remained in force at the rate of £1 = US$2.40. In other words, the pound sterling could then fall all the way down from US$2,60 to US$2.40 without any adjustment payments having to be made and such payments would only become due if and when sterling fell below a rate of US$2.40 £1," he said.
Mr. Haddon-Cave said this is, in effect, what has happened with the floating of sterling and the fixing of the Hong Kong dollar with the U.S. dollar, "Sterling has now effectively floated down from US$2.60 to about
US$2,45, involving a loss on Hong Kong's sterling reserves in terms of both
foreign currencies and Hong Kong dollars.
"But, for the reasons I have just explained, we are not entitled to any guarantee Payment under our existing agreement with the United Kingdom,'
he said,
The existing Agreement guarantees the U.S. dollar value of about 90 per
cent of Hong Kong's officially held sterling reserves at an exchange rate of
£1 US$2.40.
That is to say, if sterling falls below this rate by more than 1 por cent
for a continuous period of 30 days, the British Government will pay to the Hong
Kong Government sufficient sterling to restore the U.S. dollar value of the
guaranteed proportion of Hong Kong's sterling reserves.
15.