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Wednesday, February 28, 1972
On the question of Hong Kong's foreign exchange position and
reserves, the Financial Secretary said that Hong Kong "must maintain large
international reserves as a cushion against possible trouble and, so far as
is possible, we should spread our risks."
The past 15 months or so had shown that "the only practicable
alternative home for the greater part of Hong Kong's overseas reserves, the
U.S. dollar, is as vulnerable to currency uncertainties as is sterling."
The Financial Secretary said that the high interest rates on the
investment of Hong Kong's reserves "are only paid because of the greater
risks of inflation and of changes in exchange rates than was the case in
the past."
" he added, "to that extent, our reserves were artificially
inflated before the floating of sterling by the high interest rates that
they had earned over the four and a half years since the devaluation of
sterling in November 1967."
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