XN000022-1973-02-28 — Page 25

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Wednesday, February 28, 1972

On the question of Hong Kong's foreign exchange position and

reserves, the Financial Secretary said that Hong Kong "must maintain large

international reserves as a cushion against possible trouble and, so far as

is possible, we should spread our risks."

The past 15 months or so had shown that "the only practicable

alternative home for the greater part of Hong Kong's overseas reserves, the

U.S. dollar, is as vulnerable to currency uncertainties as is sterling."

The Financial Secretary said that the high interest rates on the

investment of Hong Kong's reserves "are only paid because of the greater

risks of inflation and of changes in exchange rates than was the case in

the past."

" he added, "to that extent, our reserves were artificially

inflated before the floating of sterling by the high interest rates that

they had earned over the four and a half years since the devaluation of

sterling in November 1967."

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