XN000022-1974-11-28 — Page 2

THURSDAY, NOVEMBER 28, 1974.

FINANCIAL SECRETARY EXPLAINS DECISION TO FLOAT H.K. DOLLAR

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THE FINANCIAL SECRETARY, MR. PHILIP HADDON-CAVE, TODAY SAID HE SAW NO REASON WHY THE TEMPORARY FLOAT OF THE HONG KONG DOLLAR AGAINST THE U.S. CURRENCY SHOULD UNDERMINE HONG KONG'S TRADING PERFORMANCE IN THE AMERICAN MARKET.

IN OPTING FOR THE FLOAT, HE EXPLAINED AT A ROTARY CLUB LUNCHEON, HE HAD FOLLOWED THE VIEW TAKEN BY ONE AUTHORITY AFTER ANOTHER AROUND THE WORLD THAT IF THE RATE WAS GOING TO GO EVENTUALLY, +THEN THE SOONER THE BETTER.+

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+1 TOOK THIS VIEW ALSO, BELIEVING THAT WITH THE SPECULATION OUT OF THE WAY THE RATE WOULD SOON MOVE BACK TO A POINT NOT VERY FAR FROM WHERE IT STARTED,+ HE SAID, ADDING +AND I AM OF THE VIEW THAT THIS BELIEF WILL BE JUSTIFIED.+

MR. HADDON-CAVE NOTED THAT SOME HAD ACCUSED THE GOVERNMENT OF BAD FAITH IN NOT FULFILLING AT LEAST FOR A LONGER PERIOD THAN IT DID ITS STATED OBLIGATION TO MAINTAIN THE RATE WITHIN THE FIXED MARGINS. THE FACT WAS, HE SAID, THAT THE GOVERNMENT HAD NOT WAITED FOR THE RATE TO REACH THE UPPER LIMIT AND HAD BEEN BUYING U.S. DOLLARS LAST WEEK IN AN ATTEMPT TO TURN THE MARKET ROUND. THIS HAD APPEARED SUCCESSFUL AT THE CLOSE OF BUSINESS LAST FRIDAY.

THE FINANCIAL SECRETARY MADE IT CLEAR THAT THE GOVERNMENT HAD NEVER FORMALLY UNDERTAKEN TO MAINTAIN THIS COMMITMENT INDEFINITELY, WHATEVER THE CIRCUMSTANCES..

THE CIRCUMSTANCES THE GOVERNMENT FOUND ITSELF IN LAST MONDAY WERE THAT SPECULATIVE PRESSURE SEEMED TO BE BUILDING UP QUITE FAST, AND NO MONETARY AUTHORITY CAN THESE DAYS WITHSTAND FOR EVER THE SHEER WEIGHT OF FUNDS THAT CAN BE BROUGHT TO BEAR ON A CURRENCY, HE SAID.

'HE ALSO POINTED OUT THAT THE SPECULATION WAS, IN EFFECT, AGAINST THE U.S. DOLLAR, WHICH HAD WEAKENED SHARPLY DURING THE PREVIOUS WEEK IN WORLD MARKETS, RATHER THAN IN FAVOUR OF THE HONG KONG DOLLAR.

MR. HADDON-CAVE NOTED THAT THE HONG KONG DOLLAR CONTINUED TO BE FIRM. BUT WHILE ITS APPRECIATION AGAINST THE U.S. DOLLAR SINCE THE SMITHSONIAN SETTLEMENT IN DECEMBER 1971 HAD BEEN NEARLY 12 PER CENT IN TERMS OF A TRADE WEIGHTED INDEX, THE APPRECIATION WAS ACTUALLY ONLY SEVEN PER CENT.

+AND SO, DESPITE THE SHARP FALL IN THE U.S. DOLLAR RATE RECENTLY THE EFFECTIVE APPRECIATION OF THE HONG KONG DOLLAR IS NO HIGHER TODAY THAN IT WAS ELEVEN MONTHS AGO.+

EARLIER, THE FINANCIAL SECRETARY REVIEWED THE CURRENT ECONOMIC SITUATION IN RELATION TO THE PAST THREE YEARS.

ALTHOUGH DOMESTIC EXPORTS HAD DROPPED, IN QUANTITY TERMS, BY ABOUT ONE-AND-A-HALF PER CENT IN THE FIRST NINE MONTHS OF THIS YEAR, THE ENCOURAGING THING ABOUT THE LATEST TRADE FIGURES, HE SAID, WAS THAT +THEY CONFIRM THAT THE TERMS OF TRADE ARE NOW MOVING IN OUR FAVOUR AGAIN, WITH DOMESTIC EXPORT PRICES REMAINING FIRM, AND WITH IMPORT PRICES FOR RAW MATERIALS AND SEMI-MANUFACTURES LEVELLING-OFF FOR THE FIRST TIME IN NEARLY THREE YEARS.+