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Chinese Government in third countries and to convert them into other
curroncios. The purpose would be to ensure effective use of the assets by forestalling any blocking by Hor Majesty's Governmont, and also perhaps to ombarrass Her Majesty's Governmont by bringing pressure on sterling. Not
loast because of the scale of the sums in question, conversion into other currencies would involve considerable problons (ospecially since the Chinoso would presumably not wish to convert into United States dollars). We must
nevertheless plan on the assumption that the conversion would be attempted.
6. The countor-action to stop this would be for Hor Majesty's Government
immediately to block all Hong Kong storling balances. As is woll known,
blocking is a gravo stop, which must always carry risks to the confidenco
of other holders of sterling balancos. But in tho circumstancos horo
onvisaged, other sterling holders would probably rogard it as necessary and justified by a situation analagous to a stato of war and created by an act of violent aggression. The risk to the stability of other sterling balancos, and to consoquont prossuro on sterling, may therefore be ignored. (This is not to say that tho political situation onvisaged would not for other reasons causo pressure on storling). Wo would not of course loave
the world to form its own judgment about the effect on sterling: WC should have to present the case with the groatost caro at the time wo brought blocking arrangements into force.
7. The balancos could be blocked within 24-hours by administrativo action under an existing Order which is in force under Section 2 of tho Energency Laws (Ro-enactments and Ropcals) Act 1964. Any payment from
a Hong Kong account would thereforo requiro the specific consent of the Treasury. This would apply not only to monoy already on Hong Kong accounts, but to any monoy subsequently finding its way thorc. It would also apply to Treasury Bills and socuri tios in the United Kingdom standing in the name of Hong Kong residents. (Details of tho balancos and of tho
rolovant logal powers are in Appendicos I and II).
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