CO129-605-4 Government loans 12-7-1946 - 6-1-1948 — Page 60

3. You would doubtless be able to decide in the

light of local conditions how the $150 million

could best be divided amongst (a), (b) and (c) above.

4. Suggestion in your telegram No.1152 for

borrowing from Exchange Fund has been very carefully

considered in light of paragraphs 2 and 3 of your telegram.

I should have liked to agree to it in view of Hong Kong's

special difficulties. But decision cannot be taken

without reference to general question of Calemal

sterling balances which is at present under consideration.

It has also been pointed out that reference to

a

arguments in paragraph 2 of your telegram (a) that Hong Kong notes circulating of held in China, for whatever purpose, require to be covered by Exchange

The says

Fund to see extent as notes circulating elsewhere

and (b) that erreck lot borrowing from Exchange Fund

is bound to be inflationery because it would create

andrelsafe ferien fachange

a fiduciary issue. In these circumstances I fear that

we must proceed on basis that suggestion cannot be adopted.

You will no doubt inform me whether, in these circumstances,

you consider that total amount of loan should be limited

to 100 million.

5. As regards paragraph 5 of your telegram No.1152, enclosure (b) of my savingram No.115 provided for the

annual sinking fund contribution to be remitted to the

Crown Agents for investments to be approved by me; and (c) of my telegram No.220 envisaged use of the Fund to

Crown purchase loan if price of loan fell below par.

Agents point out that in fact conditions may be such that even above par the loan may be the best investment

of the sinking fund; but it would be inadvisable to

include provision for making the purchase obligatory

if loan fell below par as this might lead to manipulation

of market against the Government.

There would be no

objection to provision being made for the contributions

CONT. 3

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