CO129-555-2 Estimates 1936 30-8-1935 - 29-1-1937 — Page 8

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A considerable part of the Government's

liabilities are for sterling payments, and if the

sterling exchange remains throughout 1936 at not

less than about 2/-, such a deficit would be

covered by savings on sterling expenditure.

If,

however, the dollar's sterling value were to fall,

we should have to contemplate a situation which

must be met by some emergency measures to prevent

the Government's financial position from crumbling.

In these circumstances, especially as the

emergency measures which are foreshadowed include

some emergency taxation, it is not unnatural that

the Unofficial Members of Council intend to press

strongly for the Government's sterling commitments

to be covered by a forward exchange contract.

You may remember that the Hong Kong

Government was criticized in 1932 (see 13816/33),

at a time when the future of the exchange was no

less uncertain than now, for making a forward

contract for a total remittance of £200,000 sterling

in instalments, a sum equivalent to about half the

Government's normal annual requirements of sterling.

This transaction was criticized by the Audit on the

ground that it constituted speculation with public

funds, though no doubt the criticism was in fact

largely based on the unfortunate issue of the loss

to Government which resulted in the light of the

course taken by the sterling-dollar exchange.

that occasion the Governor explained in his despatch

that it was the practice of the Colonial Government

to send from time to time considerable remittances

to the Crown Agents to keep them in funds to meet

liabilities incurred on behalf of Hong Kong: such

remittances

On