XN000022-1972-12-13 — Page 43

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Wednesday, December 13, 1972

So within the limits of the present Agreement (the operative rate

of US$2.40 and 90% cover) the floating of sterling has in no way affected

our rights (or our obligations in respect of the M.S.P.). But, of course, the

revaluation of sterling in December 1971 followed by the float downwards

has cost us dearly between US$2.6057 and US$2.40 and so, as I say, wo

have all along pressed the British Government for early clarification of

their intentions after September 1973. In addition, I shall be making it

clear to the banks that any resumption of cover under the Exchange Fund

Guarantee Scheme after the re-fix would be on revised terms, that is.to

say, the charges levied would have to reflect. the risk taken by the Exchange

Fund, taking into account all the circumstances at the time.

Assessment

Sir, the value of the sterling assets held by the Hong Kong Government,

including those bank owned assets guaranteed under the Exchange Fund Guarantee

Saheme, at the time of the float was approximately £900 m. In Hong Kong

dollar terms the whole of the loss resulting from this complicated and quite

unforeseen sequence of events following the decline in the value of sterling from US$12.6057 to US$2.40 and amounting to approximately HK$890 mm. falls on

public funds. This figure cannot be exact because not only is the rate

fluctuating, but the amounts held are changing daily. Nevertheless, the

figures I have given presents an accurate enough picture. It means, of

course, that the Government's surplus available for spending on future projects

is correspondingly reduced for two reasons: in the first place, the free surplus

/in the