XN000022-1972-12-13 — Page 34

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Wednesday, December 13, 1972

During the first half of 1972 our sterling reserves continued to

rise: the export trend was weaker than in earlier years but so was the import

trend and other factors tourism, invisibles and the capital account

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T

exhibited continuing strength. By the end of May they stood at £803 mm. of which £418 m. was on Government account and £385 m. belonged to the banking

system and was covered by the Exchange Fund Guarantee Scheme.

As soon as the 1972-73 budget was out of the way I went to London

to clarify certain aspects of the 10% diversification facility accorded us

in the previous September. With the agreement of the banks, I subsequently

decided that the facility should be utilized solely in respect of Government

owned sterling assets as the banks enjoy a 100% guarantee against a fall in

the exchange value of sterling in terms of Hong Kong dollars; and there

would have been technical difficulties in sharing this facility with the

banks. I pressed, but unsuccessfully and so did several other Governments

for a revision of the rate at which the guarantee would be implemented and,

failing this, for an early re-negotiation of the Agreement, the revised

agreement to be for a further period beyond September 1973 and effective before

the present Agreement expired. And, as I told honourable Members in this

Council on 10th May last, I argued that the revised Agreement should "reflect

present day and not 1968 realities". I meant by this that the guarantee rate

should be the rate of the day and that our M.S.P. should be further reduced.

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/Floating