XN000022-1972-07-06 — Page 10

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Thursday, July 6, 1972

Explaining the background to the decision, the Financial Secretary

said that, ever since the announcement of the floating of sterling on June 23

last, the Hong Kong Government had been following developments very closely.

Since that time the sterling/U.S. dollar rate had fallen on the London foreign

exchange market by about 7% compared with its previous middle rate. Under the

arrangements prevailing until now there has been a fixed rate between the Hong

Kong dollar and sterling of HK$14.5454/£1. One consequence of a fall in the

foreign exchange value of sterling as a result of its float has been to lower

the exchange value of the Hong Kong dollar in relation to other currencies by

more or less the same extent. In other words, the maintenance of a fixed rate

between the Hong Kong dollar and sterling has resulted in the Hong Kong dollar

floating more or less in line with sterling.

Strong Position

in

The Financial Secretary said there were several reasons why a floating

of the Hong Kong dollar with sterling was not suited to our circumstances:

the first place, any significant downward floating of the Hong Kong dollar would

result in a rise in import ooste of food and other essential consumer goods, as

well as of raw materials for industry. This would send up the cost of living

and costs and prices generally throughout the economy.

Secondly, the Hong Kong economy and the Hong Kong dollar are in a strong

position and resourees are fully employed. "There is no need" Mr. Haddon-Cave

said,"for any significant fall in the exchange value of the currency to provide

a stimulus to the economy".

/Thirdly,

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