CONFIDENTIAL:
bilateral negotiation with Hong Kong, is high and obliges
Hong Kong to keep almost all of her total external reserves
(about £400 million at end-May 1970) in sterling.
33.The Agreement with Hong Kong lasts for 5 years
until
September 1973. In common with the agreements with other
Sterling Area countries, most of which are of only 3 years'
duration, it is due for review under the terms of the
Agreement itself between March and September 1971.
34.Hong Kong could use the occasion of this review to press for
a lower minimum sterling proportion if she felt that UK
entry into the EEC would reduce her trade with the UK, on
the grounds that in these circumstances she would need
larger dollar balances. It is quite possible that she will
press for some reduction even apart from the EEC point. In
1968 the Colony felt that the minimum sterling proportion
proposed by the UK was too high, but she accepted it, with
the result that because Hong Kong's reserves have since 1968
more than doubled, almost all that increase has been held
in sterling.
35. The UK's attitude to a request of this sort would depend
upon its timing, upon what was being done vis-a-vis other
OSA countries, and on the precise proportion to which
Hong Kong sought to drop.
a major change in trading patterns was reasonable grounds
for a reduction in the minimum sterling proportion, but in
1971 the precise nature of such changes in respect of Hong
Kong would not be clear and we should be unlikely to want
to make such a concession then.
We should probably accept that
/The
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