XN000022-1972-12-13 — Page 31

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Wednesday, December 13, 1972

eligible sterling asset held by the Hong Kong Government including 90% of the

eligible sterling asset owned by the banks and brought into official hands

through the Exchange Fund Guarantee Scheme.

Under this scheme

-

the

Exchange Fund Guarantee Scheme - the Exohange Fund guarantees to the

banks the Hong Kong dollar value of 100% of the sterling covered under

the scheme and a small charge is made.

The Sterling Guarantee Agreement is first implemented if the

sterling/U.S. dollar rate falls below US $2.40 by more than 1% for a continuance

period of 30 days. Then the British Government is obligated to pay to the

Hong Kong Government, for account of the Exchange Fund. sufficient

sterling to restore the U.S. dollar value of the guaranteed proportion of

our official sterling reserves. Thus, providing there was no significant

fall in the total of bank owned sterling assets between the date the

sterling rate was floated and the date the rate first fell below US $2.40 by

1%, the burden of adjustment payments from the Exchange Fund to the banks

in respect of any fall in the ate below U.S. $2.40 will be largely met -

to the extent of 90%- by compensation payments to the Exchange Fund by the

Bank of England on behalf of the British Government. If the sterling/US

dollar rate falls further and subsequent implementations are necessary

the position is the same, provided again there has been no significant

fall in bank owned sterling. The Exchange Fund Guarantee Scheme is implemented

in respect of any fall in the fixed rate between the Hong Kong dollar and

sterling. Adjustment payments have to be made to the participating banks

so as to restore the Hong Kong dollar value of the sterling covered, but,

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