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ANNEX III
ACTION TO BE TAKEN IN THE EVENT OF A FLIGHT OF CAPITAL
ي الاول
The war of nerves might lead to a flight of capital
from Hong Kong: in the first instance, this would probably take the form of a move out of Hong Kong dollars into
sterling and other currencies, coombined with an expansion
of the Hong Kong note issue, at the expense of bank deposits in Hong Kong. There might also be a flight by Hong Kong banks and traders out of sterling, with
Singapore probably the main destination.
disturb the U.K. as long as Bingapore continued to hold their balances in sterling; but Bingapore might be more likely to diversify than Hong Kong is now. The banks, who would come under severe liquidity pressure, could be relied upon to bring this situation to the notice of the authorities quite quickly.
2.
This need not
Initial action to prevent or conħain a flight of capital would have to be taken by the Hong Kong authorities, who have powers under the Defence Financial Regulations to impose controls. These powers, as at present applied, are limited in scope, and are interpreted liberally. Their scope could be widened, and their administration tightened.. The Regulations are renewable annually. It is important that the Hong Kong authorities keep them in being; andfor introduce permanent legislation as they have recently been asked to do in any event in order to improve exchange control generally),
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3. The main control would thus be in Hong Kong. far as sterling balances were involved,/thex Bank of England
U.K. banks
should operate on the strength of local control approval. The United Kingom is, however, ultimately responsible for the administration in Hong Kong, and it might be necessary
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