TNAG-0329-FCO40-365-Briefs-for-UK-officials--visits-to-Hong-Kong-1972 — Page 32

5.

CONFIDENT I AL

various questions connected with the management

1.

of our funds and investments;

(b) hopefully, with the Treasury and the Bank

of England:

(i) the utilisation of the 10%

diversification facility now available

I

to us under the Guarantee Arrangement;

(ii) the actual meaning, implementation and practical value of the Arrangement in

present circumstances;

(iii) the future of the Arrangement and of the sterling balances (including present

thinking on the implications for the

Sterling Area of the UK's entry into the

Common Market).'

11

The present position is that Hong Kong enjoys a conside- rable degree of financial d evolution and is free to invest its reserves either in Hong Kong or London. The Hong Kong Exchange Fund Ordinance which provides for the establishment of a fund to be used for the purpose of regulating the exchange value of the currency stipulates that the Fund, or any part

of it, may be invested in securities approved by the Secretary of State. There are no administrative directions which require the keeping of the reserves, if placed in the UK, in the hands of the Crown Agents. The Hong Kong Government has of course complete freedom to spend the reserves should the need arise.

Hong Kong Department

April 1972

2

CONFIDENTIAL

}

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