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APPENDIX II
ACTION IN THE EVENT OF A DECISION TO BLOCK STERLING
BALANCES IN THE CONTEXT OF A FORCED EVACUATION
Control over the assets of residents outside the United Kingdom can be exercised either under the Exchange Control Act 1947 or under Section 2 of the Emergency Laws (Re-enactments and Repeals) Act 1964.
2. Of the two methods, the Exchange Control Act provides for exercise of the fullest control but has to be reinforced in respect of the disposal of Treasury Bills and gold by Section 2 of the Emergency Laws Act. The Exchange Control Act can in general be used only if the assets are those of residents outside the Scheduled Territory. A necessary preliminary to its use in respect of Hong Kong assets would be the exclusion of Hong Kong from the Scheduled Territories, with control exercised under the Exchange Control Act supported by an Order under Section 2 for Treasury Bills and gold.
3.
Section 2 of the Emergency Laws can be applied to the assets of any non-resident of the United Kingdom irrespective of whether he is resident in the Scheduled Territories or outside
them. It is a condition that action to the detriment of the economic position of the United Kingdom is being, or is likely to be, taken by the government or residents of the territory concerned; in the circumstances envisaged this condition would be fulfilled in respect of residents of Hong Kong. An Order under
this Section operates only on assets which are already owned by residents of the territory concerned; that is, on payments from sterling balances and the disposal of securities, etc., it does not operate on credits to sterling accounts or on transfer of securities to residents of the territory concerned,
4.
On the assumption that the action to be taken would be limited to blocking in the first instance the natural course would be to use the Section 2 powers, which would be effective for this purpose. Full exchange control, using the Exchange Control Act, could be imposed later.
5. The position of Hong Kong is unusual in that a Section 2 Order is already in existence. It has been the backing since 1950 of arrangements designed to isolate so far as possible the Hong Kong free market from residents of the rest of the Sterling Area. It would require no more than a change of administrative practice to exercise a complete control over the assets of residents of Hong Kong. No additional legal instrument would be necessary. Instructions could be issued to the banks within twenty-four hours; indeed, in an emergency, an interim Notice could be distributed very quickly to the major banks in the City and followed by a general Notice to be distributed throughout the banking system.
6.
In the situation envisaged, many Hong Kong residents, especially the richer ones, would probably escape to other countries. Many would no doubt have sterling assets, but since some would otherwise be without means of support, it would be necessary to establish quickly a scheme for limited releases from the blocked funds and arrangements for registering and dealing with claims.
7. Other former Hong Kong residents will have only Hong Kong dollars in cash or in deposit with Hong Kong banks, of which there are probably no records in the United Kingdom.
The Hong Kong dollar
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