TNAG-0126-FCO40-162-Sterling-balances-1970 — Page 56

NOTHING TO BE WRITTEN IN THIS MARGIN

W(B)L 51-7406

CONFIDENTIAL

suspicious of its purpose).

But more

important, the Hong Kong authorities have only

undertaken not to take into official reserves non-

resident deposits by banks outside Hong Kon;

deposits by private non-residents, it is said,

cannot be identified, nor can the ir sterling

Counterparts (There are also problems arising

እኔ

from the effectives of the checks and controls

which do exist.)

7. In these circumstances the only control

which we can exercise over the Hong Kong Govern-

ment is through the statutory limit on their

کیا

poers to borrow for the Exchange Fund.

These are fixed by the Hong Kong Exchange Fund

Ordnance which under Royal Instructions cannot

be amended without HMG's approval.

8.

After the conclusion of the Sterlin g

Agreements Hong Kong asked for permission to

increase the borrowing limits of the Exchange

Fund. This was agreed and after a further

request the limit was again raised to its axIK

present ceiling of HK$3,000 million (about

£200 million). Hong Kong also asked for

permission to make further amendments by resolution of Legislative Council to avoid the

delays involved in the normal legislative

procedures. No decision has been reached on

this request but it is unlikely to be agreed for

the two reasons that such a loss of control

would be constitutionally unacceptable and also

because in the absence of any other form of

control the extentxofxKMGÅsxìiab±±±±ɣxund¤R

Treasury would be unable to limit the extent of

/HMG's