XN000022-1972-03-16 — Page 10

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Thursday, March 16, 1972

He recalled that an agreement was reached in June 1968 between

the United Kingdom and Hong Kong whereby the U.K. was to issue Hong Kong

Dollar bonds to protect the Hong Kong dollar value of the Colony's sterling

funds in the United Kingdom.

"This arrangement was, however, substituted in September 1968

by a Sterling guarantee which gave protection to the official Sterling

assets deposited by all Commonwealth countries in the United Kingdom that

the value of Sterling would not be less than US$2.40," he added.

Mr. Lee pointed out that the advantages of putting a part of

Hong Kong's reserves in London was obvious because, besides that guarantee

attraction, London had a large money market capable of offering good

returns and sound investment opportunities for them.

Investments

The yield from the Colony's United Kingdom investments was

higher than that from Hong Kong, he added.

"Notwithstanding these advantages, however, we must always

consider how safe are our reserves against future monetary crisis affecting

Sterling.

"I think the time has now come when we should re-appraise our

situation seriously," he said.

Mr. Lee pointed out that since the re-alignment of all major

currencies in the world in December last year, the parity of Sterling had

been raised from US$2.40 to US$2.6057.

"This almost completely changes the character of the Sterling

guarantee for it is only below this rate will Hong Kong be qualified for

protection and therefore, for all intents and purposes, the United Kingdom

Sterling guarantee now means very little to Hong Kong," he said.

/He went

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