TNAG-0126-FCO40-162-Sterling-balances-1970 — Page 71

CYPHER/CAT A

PRIORITY HONG KONG

TELEGRAM NUMBER 396

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CONFIDENTIAL

TO FOREIGN AND COMMONWEALTH OFFICE

16 MAY 1969.

CONFIDENTIAL

(314)

YOUR TELEGRAM 16321: EXCHANGE FUND AND STERLING GURANTEES.

THE FURTHER COMMUNICATION PROMISED IN YOUR PARGRAPH 2 HAS NOT BEEN

RECEIVED BUT I MUST NOW REPORT THAT BORROWING BY THE EXCHANGE

FUND UNDER OUR EXCHANGE GUARANTEE ARRANGEMENTS HAS NOW REACHED.

HONGKONG DOLLARS 2,992 MILLION AGAINST THE PRESENT LIMIT OF 3,000

MILLION. ALL BANKS OF ANY CONSEQUENCE ARE NOW PARTICIPATING IN THE

SCHEME EXCEPT THE CHINESE COMMUNIST BANKS, WHICH, IF THEY DO COME IN,

ARE LIKELY TO DO SO FOR RELATIVELY SMALL AMOUNTS. BUT THE CONTINUING

BUOYANCY OF OUR ECONOMY IS PRODUCING A STEADY INCREASE IN THE

EXCHANGE RESERVES OF THE COMMERCIAL BANKS AND THE FUND'S BORROWING

LIMIT MAY SOON BE REACHED. I CONSIDER THAT IT IS NECESSARY TO

INCREASE THE LIMIT TO 3,500 MILLION AT LEAST, BUT PREFERABLY TO

4,090 MILLION, IF THE LEGAL COMPLICATIONS YOU HAVE REFERRED TO

CONTINUE TO STAND IN THE WAY OF PROVIDING FOR AMENDMENT BY

RESOLUTION OF LEGISLATIVE COUNCIL. I SHOULD BE GRATEFUL FOR YOUR

CONSENT.

CONFIDENTIAL

/2.

A SITUATION

RECEIVED IN RIGUTA

HKK 5/6