CONFIDENTIAL
R.GI...
MR. SYMONS
Hong Kong:
c.c. Mr. Gordon Mr. Nagler
Mr. Hall
Mr. Turner
Miss England
Mr. Mackenzie
Bank of England
Foreign and Commonwealth Office
A BW markenzie
Commercial Bank Balances
1. When Mr. Bell was in Hong Kong in March, he raised with the
authorities there our concern that a limit should be set to the amount
of sterling which could be taken into official reserves by the
Hong Kong Government from local commercial banks, so that we have some
safeguard against the intake of funds originating outside Hong Kong.
Just before Mr. Bell left for Hong Kong, Sir J. Cowperthwaite sent us
copy of his letter to the commercial banks setting out the offer of an
exchange guarantee which the Hong Kong Government was making to them
(itself getting the guarantee under our agreement on the sterling
taken from the commercial banks). We did not try to brief Mr. Bell
on the details of these arrangements in time for his visit, but left
these to be considered in the light of the results of the general
approach which he was to make on the need for a limit to the balances
taken in from commercial banks.
2. The underlying principles embodied in the arrangements offered to
the commercial banks are in general acceptable to us, although we have
some points to make. But our main concern is that the Hong Kong
Government's ability to check the commercial banks' compliance with
the terms of the arrangements that they do, in fact, at all times
-
hold sterling more than that deposited with them by the Government,
and that they do not sell to the Government sterling originating from
the free market or outside Hong Kong is small, and therefore
arrangements which are correct on paper may not in practice prevent
abuse. It was our general concern that the adequacy of Hong Kong's
exchange control which led Mr. Bell to be doubtful whether adequate
/arrangements
8 MAY 1969
HKKS
CONMDENTIAL
No comments yet.
Private notes are available after approval.