TNAG-0126-FCO40-162-Sterling-balances-1970 — Page 77

CONFIDENTIAL

arrangements could be worked out to allow us to remove the limit of

₫ HK 3,000 million which we have sought to impose; but the weakness

of checks could also lead to abuse within the limit to which we have

already agreed.

3. In these circumstances, the Bank feel strongly, and I share their

view, that we ought to express to Sir J. Cowperthwaite some of our

concern, and in particular that we should make it known that we may

require returns from the London depositaries of the commercial banks

to ensure that the proper amount of sterling is indeed being held in

London; we should also ask that an obligation be placed on the

commercial banks in Hong Kong to provide us with advice of each month

most banks are sending advices to us, but the coverage is not complete

and there is no requirement that they should be made in the letter of

29th January. The second point is provided for in the Secret Dispatch

dealing with the implementation of the agreement; the first is not

explicitly dealt with there, and we may well find opposition from

Sir J. Cowperthwaite. But at the time of implementation it would be

a very important safeguard for us, for otherwise we could find our-

selves paying on sterling which did not exist, while the knowledge

that we were going to make such a check at very least at a time of

implementation would also cause the Hong Kong Government to be more

concerned about the day-to-day policing of the arrangements, because,

otherwise, they could find themselves let down by the inefficiency of

dishonesty of the commercial banks and have actual sterling holdings

below m.8.D.

44. The Bank would also like to criticise Sir J. Cowperthwaite for

having included the non-authorised banks in the arrangements. These

have no obligation to hold sterling and can cover forward on the free

market; they are much less deserving of the guarantee than the

CONFIDENTIAL

/authorised