CO129-605-4 Government loans 12-7-1946 - 6-1-1948 — Page 156

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been set up, apply to Hong Kong as to other Colonial

currencies. The par value of Hong Kong currency has

now been declared by H.M.G. to the Fund as 1/3d and

would only be altered in accordance with the

internationally agreed rules about 'alteration of

exchange rates. These do not of course tie Governments

completely to existing rates of exchange but their

general aim is to ensure as much stability of rates as

is practicable. We should therefore be glad of your

views as to the form of a statement which might be made

which would be as reassuring to investors as possible

without resulting in a pledge.

Flo (6)

The Governor states that it is desirable that

there should be a settlement of the bank liquidation pool

account before loan is floated, so as to free funds for

investment. This question has now been settled separately,

- see our telegram No.

2. As regards paragraph 3 of the Crown Agent's letter

the disadvantage of a "drawing loan" is that it involves

complete redemption over the period of the loan, while if

statutory

-

a/sinking fund is created Government can still, if it

seems wise, create a supplementary fund for the balance.

In present H.K. conditions there would seem to be a good

case for avoiding large sinking fund contributions and for

throwing part of the present burden of rehabilitation on

to the future generations who will even at a distance

benefit from the restoration of Hong Kong to normal conditions.

Our inclination which I imagine the Treasury would favour,

(provided the H. K. Government are satisfied it would not

is thus prejudice the successful floating of the local loan) for a 1 10% statutory S.F., leaving the question of a

supplementary sinking fund to be reviewed in say five years

when financial conditions may be more easy. A possible

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