I
Wednesday, December 13, 1972
British Government as part and parcel of a renegotiation for a further
two years from 25th September 1971 of the terms of the three year Sterling
Guarantee Agreements and naturally this concession was extended to those
countries with five year agreements.
1971 International Monetary Crisis
The U.S. dollar crisis was resolved by the Smithsonian settlement
announced on 19th December. For a variety of reasons, which I explained
at length in an adjournment debate in this Council on 5th January last,
the Government decided to maintain the gold parity of the Hong Kong
dollar, thereby revaluing against the U.S. dollar by 8.57% and maintaining
the then Hong Kong dollar/sterling parity. So this decision had no
implications for the value in Hong Kong dollar terms of our external
exchange reserves given that they are - or were then
T
almost entirely held
in sterling. However, the British Government insisted that the sterling
balances of all countries with whom they had entered into agreements remained
guaranteed at US $2.40, that is to say, that the new Sterling/U.S. dollar
rate of US $2.6057 was not applicable. Yet we immediately realised that any
devaluation of sterling which was not followed by an adjustment of the
Sterling/Hong Kong dollar rate would mean that the Hong Kong dollar value of
the banks' sterling assets would have to be restored through the Exchange
Fund. This was the origin of many subsequent difficulties.
/During