Sec. 1/2062/46.
Orij. on 54126 /14/49
Secretary of State for the Colonies.
20th
M Wallace
Juno,1949.
490
CONVIDENIAL.
53617/49
-
... 10 1-JU 1949 REGISTRY
338
(
Your telegram No.294 of 17th March.
Loun.
The objections from the Exchange Control point of view to further issues of bearer bonds were discussed with Mr. Portamore during his recent visit. The proposal that the issue and transfer of such bonds should be restricted to residents of Hong Kong and that such residents should not be allowed to receive interest or redemption money if they subsequently becanic non-resident has been carefully considered. This requirement would undoubtedly deter residents of the expatriate class from investing in Government loans as they could hardly be expected to purchase a security which they would be compelled to sell at a moment not of their own choosing and perhaps at a heavy loss, just because the time had come for their final departure from the Colony. Mr. Portamore fully agreed that such a restriction would be much criticised and would be open to objection. Applications from the expatriate element accounted for two per cent of the last issue and we could not afford to lose even this degree of support. The restriction of issue and transfer to residents of the sterling area would not be open to the same objection and would enable applications to be received from Singapore and Malaya. I und erstand, however, that it would be difficult to agree to this wider form of restriction as such a condition might be regarded as discrimination against American citizens.
2.
On the whole it seems to me that the proposal which was originally put forward in paragraph 4 of your telegram (14) '48. No.1245 of 2nd December, 1948, is probably the least
objectionable, namely that issue and transfer should be confined to residents of Hong Kong, and that interest and redemption money should only be payable to persons who were resident in Hong Kong at the time when they purchased the bonds. The requirement that bearer bonds should be deposited with an authorised bank would give rise to oifficulty, as this would presumably have to be applied to all bearer issues and not merely to future issues. Registration might not discourage banks, institutions and charitable trusts, etc., from taking up any new issue, but it would definitely rule out all possibility of applications from individual Chinese and in all probability would discourage the Chinese banks from taking up any roportion of a future issue.
3.
If some form of restriction is quite unavoidable, my conclusion is that the proposal set out in paragraph 4 of your telegram No.1245 of 2nd December, 1948 is the least objectionable, assuming of course that it is impossible to restrict the issue and transfer of bonus to residents in the sterling area, which I should much prefer. I recognise that there is a potential danger that the bonds might be bought by Americans with free market sterling, or that they might be anuggled out of Hong Kong and sold to non-residents who could claim ultimate repayment in the currency of their country of residence. I doubt very much however whether the danger is a real one. Nothing of the sort has happened up
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