CONFIDENTIAL
The
which the banks could hold were limited to working balances.
special arrangements in Hong Kong inevitably gave the banks
competitive advantage over other banks in the OSA. Sir J. Cowperthwaite
questioned whether this was so. The banks in Hong Kong had been
reluctant to increase their deposit and lending rates and thus showed
no anxiety to attract deposits.
6. There was then discussions of the proposals made in Telegram 343
to Hong Kong. Sir J. Cowperthwaite said that the absence of separate
Hong Kong dollar bank accounts in Hong Kong made it difficult to
identify accurately and without evasion those Hong Kong dollar
deposits which originated outside Hong Kong or to assess the amount of
non-resident sterling sold to Hong Kong banks. This would make it
impossible to operate at all fairly either of the proposals made by
the United Kingdom - to exclude from the Exchange Fund the sterling
counterpart of non-resident funds or to guarantee only a proportion of
the Exchange Funds assets. Nor could the banks be expected to take
the exchange risk on sterlingheld against non-resident deposits for
they had no choice but to hold their assets in sterling or
Hong Kong dollars. But they would not be able to refuse non-resident
deposits, or distinguish between those for some legitimate purposes
(e.g. investment) and those which were simply a currency hedge.
it was impossible to identify the sterling counterpart of non-resident
deposits once these had been absorbed into the banking system.
7. The United Kingdom Side suggested a possible modification to
Hong Kong's guarantee arrangements with the commercial banks, to put
Hong Kon; on a comparable basis to Australia, by placing an agreed
limit on the amount of guaranteed sterling which the Hong Kong
Government might agree to redeposit with the banks in Hong Kong
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C NFIDENTIAL
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