10
STERLING AGREEMENT
HM has undertaken to maintain the value in terms of the US % of 90% of Hong Kong's total reserves provided she maintains a minimum of 99% of her reserves in sterling (MSP). The guarantee does not extend to equities (which will have appreciated with the devaluation of the pound). Neither does it extend to private holdings. But because Hong Kong relies on the three main Commercial Banks to issue Bank Notes and to deal in sterling at official rates some of the Commercial Banks balances were by special arranɣement brought within the scope of the Agreement through the Exchange Fund. The Agreement is for 3 years with provision for a further 2 years.
The "skeleton" of the Agreement was made public in a Command Paper. This did not reveal the 991 MSP. But well- informed Hong Kong businessmen will know this, because the Financial Secretary revealed the figure to Legco. They may repeat the argument that this proportion is too high. The short answer is that Hong Kong cannot have it both ways: the guarantee AND licence to diversify.
Sir J. Cowperthwaite also revealed that if sterling was devalued the guarantee would be implemented after 30 daya. The Fress picked this up. Any probing on this score should be firmly řepelled because it will be aimed at finding out the exchange rate at which the guarantee will be implemented.
Hong Kong Department
14 March, 1969
RECEIVE IN I ARCHIV>
14 A09
HILIL
31.
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