TNAG-0335-FCO40-371-Visits-of-Secretary-of-State-for-Foreign-and-Commonwealth-Af-1972 — Page 10

NOTHING TO BE WRITTEN IN THIS MARGIN

SECRETARY OF STATE'S VISIT TO CHINA

DRAFT PASSAGE FOR STEERING BRIEF ON INTERNATIONAL

TRADE AND FINANCIAL QUESTIONS (FOR DEFENSIVE USE

ONLY)

(I)

THE FLOATING OF STERLING

Over the years the Chinese have earned a

sizeable surplus in their trade with Hong Kong and

have converted the Hong Kong dollar proceeds into sterling, which is in turn used to finance much of

China's trade with other countries. The UK's decision

initially

to float sterling gave rise to problems about the

correct rate of conversion from Hong Kong dollars

Although the Hong Kong authorities

into sterling.

have now opted for a fixed parity relationship between

the Hong Kong dollar and the US dollar, it is their

intention to declare a new fixed parity against

sterling once sterling has ceased to float.

Rams

This

should help to resolve any (difficulties that the

be

Chinese may have experiencing.

Defensive Points

(a) We understand that the Chinese and Hong

Kong authorities have already ironed out many of the

problems caused by floating.

(b) (If the Chinese ask when sterling will

revert to a fixed parity). We intend to return to

a fixed parity as soon as circumstances permit. (NB

The Chancellor of the Exchequer has said in the House

it of Commons that he hopes/will be possible to do so

/by

CONFIDENTIAL