TNAG-0056-FCO40-92-Evacuation-plan-1967 — Page 137

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Hong Kong sterling holdings in the U.K.

5. If the Chinese occupy Hong Kong, they must be expected to try

to assume control over the disposition of assets, whether domestic

or foreign, belonging to residents of Hong Kong who are unable to

escape, which would include banks, and to lay claim to the balances

of the Hong Kong Government. This latter claim would no doubt be

the subject of legal disputation. The net total of private holdings

is some £130 million, and of official holdings over £200 million.

6. Having taken control over the dispositions of these balances

the Chinese would probably seek to transfer them to the account of

the Chinese Government in third countries, and probably to convert

them into other currencies. The purpose would be to ensure effective

use of the assets by forestalling any blocking by H.M.G.: and also

perhaps to embarrass H.M.G. by bringing pressure on sterling. Not

least because of the scale of the sums in question, conversion into

other currencies would involve considerable problems (especially

since the Chinese would presumably not wish to convert into U.S.

dollars). We must nevertheless plan on the assumption that the

conversion would be attempted.

7. The counter-action to stop this would be for H.M.G. immediately

to block all Hong Kong sterling balances. As is well known,

blocking is a grave step, which must always carry risks to the

confidence of other holders of sterling balances. But in the

circumstances here envisaged, other sterling holders would probably

regard it as necessary and justified by a situation analagous to

a state of war and created by an act of violent aggression. The

risk to the stability of other sterling balances, and to consequent

pressure on sterling, may therefore be ignored. (This is not to say

that the political situation envisaged would not for other reasons

cause pressure on sterling.) He would not of course le ave the

world to form its own judgment about the effect on sterling:

should have to present the case with the greatest care at the time

we brought blocking arrangements into force.

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