TNAG-0333-FCO40-369-Visits-of-Secretary-of-State-for-Foreign-and-Commonwealth-Af-1972 — Page 34

CONFIDENTIAL

was devalued by just over 14 per cent, Hong Kong has resented

this most recent loss; although, in response to any such

criticisms from Hong Kong, it might be pointed out that the

present dollar value of sterling is no lower than it was in

mid 1971 or indeed at the end of 1967.

to

Moreover because of Hong Kong's extreme dependence on

external trade, and particularly as far as imports of

commodities for local consumption are concerned on trade with

China, Hong Kong felt it necessary with UK concurrence

peg the Hong Kong dollar at least temporarily to the US dollar

in July of this year, rather than continuing to float with

sterling.

that,

The US dollar value of Hong Kong's official sterling

reserves is guaranteed at a rate of US$ 2.40. There is

however a further complication in the case of Hong Kong

which does not apply to other Sterling Area countries

because there is no Central Bank, her Government guaranteed

local banks in respect of the Hong Kong dollar value holdings

they were required to keep in sterling; and this will involve

the Hong Kong Government in substantial additional losses.

Discussions were held in Hong Kong in July in the

context of the general negotiations on the possibility of

concluding a new sterling agreement to carry forward, in a

slightly modified form, the present arrangements beyond the

expiry date of September 1973; and in September in London,

/when

CONFIDENTIAL