XN000022-1972-07-06 — Page 11

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Thursday, July 6, 1972

Thirdly, a floating rate results in continuous uncertainty for

traders as regards the rates of exchange at which they will be contracting

business. In Hong Kong's circumstances, where most manufacturers produce to

order for overseas markets and incur large import commitments for raw materials,

these difficulties would be especially marked.

Mr. Haddon-Cave revealed that, in the course of a detailed and intensive

review of all the courses open, the Government gave serious consideration to

the possibility of revaluing the Hong Kong dollar immediately to a new fixed

rate with sterling. But this involved the difficulty of choosing a rate which

would be considered realistic in relation to the movements of the sterling

float. If too low a rate were picked in relation to sterling the Hong Kong

dollar would again be pulled down in relation to other currencies by the movement

of sterling. On the other hand, if too high a rate were chosen, the Hong Kong

dollar might even appreciate against other currencies and thus make our exports

uncompetitive in overseas markets.

Most Convenient Method

"Furthermore", he said, "if this course were adopted the Hong Kong

dollar would still continue to fluctuate, at the new rate, in response to the

movements of the pound sterling in relation to the U.S. dollar". So there would

be continuing uncertainty.

"In all the circumstances", the Financial Secretary continued, "the

Government has decided that the most convenient method of getting through the

period of the floating of sterling would be to establish a new fixed rate of

exchange with the U.S. dollar. This will provide stable exchange rates with

countries with which Hong Kong conducts almost nine-tenths of its trade while

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