CYPHER/CAT A
IMMEDIATE HONG KONG
TELEGRAM NUMBER 405
CONFIDENTIAL
TO FOREIGN AND COMMONWEALTH OFFICE
19 MAY 1969
REA
CONFIDENTIAL
YOUR TELEGRAMS 329 AND 330.
STERLING GUARANTEES.
I AM MOST DISTURBED BY WHAT YOU SAY, BOTH IN RELATION TO OUR IMMEDIATE PROBLEM AND TO THE LONGER TERM IMPLICATIONS. THERE WAS AT NO TIME ANY SUGGESTION THAT THE FULL 90% GUARANTEE CONTAINED IN THE U.K. GUARANTEE AGREEMENT WOULD NOT BE AVAILABLE TO HONG KONG AND OUR ARRANGEMENT WITH THE COMMERCIAL BANKS IS BASED ON THIS. IT WILL NOT BE POSSIBLE TO REFUSE A BANK COVER ON THE GROUNDS THAT THE HONG KONG EXCHANGE FUND HAS RUN OUT OF BORROWING POWERS SEMICOLON AND, IN POLITICAL AS WELL AS MONETARY TERMS, MOST EMBARRASSING, IF NOT DANGEROUS, TO HAVE TO CONFESS, AS WE WOULD HAVE TO, THAT THIS IS BECAUSE H M G ARE USING RESERVE POWERS TO PREVENT AN INCREASE IN BORROWING. (THERE WOULD ALSO BE SPECIAL DIFFICULTIES IF COMMUNIST BANKS NOW NOTIFIED US OF THEIR DESIRE TO PARTICIPATE IN THE SCHEME).
2. THE ONE TEMPORARY EXPEDIENT I CAN SUGGEST WOULD BE TO ALLOW BANKS WHATEVER INCREASE IN THEIR NON-STERLING HOLDINGS THAT WOULD BE NECESSARY (ALTHOUGH THIS COULD BE DIFFICULT FOR COMMUNIST BANKS). OTHERWISE BANKS MAY REFUSE TO PURCHASE STERLING.
3. REPLY TO YOUR TELEGRAM 330 FOLLOWS.
14) 9 (15
SIR.D.TRENCH
FILES F.P.A.D.
H.K.D.
KCF,
ADVANCE COPIES SENT
RECEIVED IN
REGISTRY No.51
22 MAY 1969
HKK
HKK CONFIDENTIAL
16
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