XN000022-1972-03-16 — Page 11

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11

Thursday, March 16, 1972

He went on to point out that the situation for Hong Kong was

even more "uncomfortable" by reason of the fact that Government had

extended similar guarantees to the banks in Hong Kong to protect the

Hong Kong dollar value of their Sterling investments in the U.K.

"Tor, while a devaluation of Sterling from US$2.6057 to below

US$2.40 is unlikely, the possibility of Sterling falling back to between

US$2.6057 and US$2.40 should not be ruled out bearing in mind that the

recent strength of Sterling is partly technical as reflected by the weakness

of the U.S. Dollar," he said.

Sterling

Mr. Lee added that should the U.S. Dollar regain its strength,

Hong Kong would be open to risk that could arise from the possibility of

Sterling being devalued to a rate below US$2.6057 but still above US$2.40

and yet the Hong Kong Dollar, for obvious reasons, might not follow such

devaluation or might only follow partly as in the 1967 Sterling devaluation.

#The result would then be that the Government has to compensate

the banks for their losses which it could not recover under the United

Kingdom Sterling guarantee because the U.S. Dollar value of Sterling would

still be above US$2.40," he said.

The ideal solution would be to raise the parity of US$2.40 in

the guarantee to US$2.6057 or better still the gold content in Sterling

should be guaranteed, he added.

"With the Sterling guarantee expiring in September 1973, Hong

Kong must in any case commence negotiation with the United Kingdom Government

to find a solution to settle this complicated problem."

/Commenting