TNAG-0126-FCO40-162-Sterling-balances-1970 — Page 67

CYPHER/CAT A

CONFIDENTIAL

R+PA

Mar 19/5

IMMEDIATE FOREIGN AND COMMONWEALTH OFFICE

TELEGRAM NUMBER 33%

CONFIDENTIAL

M.1.P.T.: FOLLOWING IS TEXT.

TO HONG KONG

16 MAY 1969

(MF)

1

THANK YOU FOR YOUR LETTER OF 1 MARCH, WITH WHICH YOU ENCLOSED

尊

A COPY OF YOUR LETTER OF 29 JANUARY TO THE CHAIRMAN OF THE EXCHANGE BANKS' ASSOCIATION IN HONG KONG, ABOUT THE ARRANGEMENTS YOU HAVE WORKED OUT TO BRING THEIR STERLING BALANCES WITHIN THE SCOPE OF OUR STERLING AGREEMENT.

2. SINCE YOU WROTE, BELL HAS BEEN IN HONG KONG AND HAS DISCUSSED WITH YOU OUR NEED FOR A SAFEGUARD THAT THE ARRANGEMENTS WORKED OUT IN RESPECT OF THE HONG KONG COMMERCIAL BANK BALANCES SHOULD NOT COVER DEPOSITS WITH THESE BANKS BY NON-HONG KONG RESIDENTS. WE RECOGNISE OF COURSE THAT THE ARRANGEMENTS MADE WITH THE COMMERCIAL BANKS ARE IN THE FIRST PLACE THE CONCERN OF THE HONG KONG GOVERNMENT. OUR CONCERN IS TO ENSURE THAT THE STERLING WHICH YOU ACQUIRE COMES PROPERLY WITHIN THE SCOPE OF THE GUARANTEE WHICH WE ARE PROVIDING, FOR WE WOULD HAVE TO BE ABLE TO SHOW THAT THESE PAYMENTS, SHOULD THEY EVER HAVE TO BE MADE, WERE MADE ONLY IN RESPECT OF ACTUAL STERLING HELD AT THE TIME DEFINED IN THE AGREEMENTS AND WITHIN THE SCOPE OF THOSE AGREEMENTS, I.E. EXCLUDING ANY STERLING HELD FOR. RESIDENTS OUTSIDE HONG KONG.

3. YOU SUGGESTED TO BELL THAT IT WOULD BE POSSIBLE TO GIVE US THE SAFEGUARD WE NEED BY CHECKS MADE THROUGH EXCHANGE CONTROL IN HONG KONG TO PREVENT THE POSSIBILITY OF YOUR GUARANTEE ARRANGEMENTS COVERING FUNDS FROM NON-HONG KONG RESIDENTS. AS BELL SAID, WE WOULD BE VERY READY TO CONSIDER SUCH PROPOSALS, ALTHOUGH BEFORE WE COULD DEPART FROM THE STATUTORY IMPOSITION OF THE LIMIT OF DOLLARS HK 3,900 MILLION ON THE BORROWING POWERS OF THE EXCHANGE FUND, WE WOULD NEED TO BE SATISFIED THAT THE ARRANGEMENTS WERE ABSOLUTELY

WATER-TIGHT.

/4. TO

RECEIVED IN REGISTRY No.51

19 MAY 1969

HILICS

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CONFIDENTIAL

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