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safeguards of this sort introduced into the scheme and,
as Bell said, we would be very ready to consider such
before could proposals, although, (if we were to consider relaxing the
statutory imposition of the limit of HK 3,000 million
on the borrowing powers of the Exchange Fund, we would
need to be satisfied that the arrangements were absolut ely
water-tight.
40
We are generally in agrement with the principles
set out in your letter of 29th January to the Chairman
of the Exchange Banks' Association, to exclude funds held
by Hong Kong banks which do not arise from local residents.
I offer the following comments on the details of the
arrangements, which are, in effect, amplification of the
points Bell has already made.
5. While of course the very general discussion which
`we had on this matter during the sterling negotiations
did not distinguish between commercial banks in Hong Kong,
we note that your offer includes the non-authorised as
well as the authorised banks, although the non-authorised
banks have no obligation to hold sterling and are already
able to cover their foreign exchange risks through the
free market. In this connection, you will presumably
ased to take steps to ensure that these banks comply with
the provisions of paragraph 6 of your letter.
6. The main point I would make on the principles of
your arrangements relates to paragraph 4(6) of your
letter. This excludes from the scope of the guarantee
the sterling counterpart of the Hong Kong dollar balances
of the banks' branches of correspondence abroad " in
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/excess
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