TNAG-0335-FCO40-371-Visits-of-Secretary-of-State-for-Foreign-and-Commonwealth-Af-1972 — Page 56

A

RI SANe

5.

6.

STERLING CURRENCY

The floating of sterling created special problems for

Hong Kong.

Nearly all Hong Kong's external reserves are held in sterling, and Their value in relation to other currencies

has declined with the fall in sterling's value after the float (by 7 per cent or so on a total of over £800 million). Following the earlier loss in November 1967, when sterling

twas

naturally

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

this most recent loss, although, in response to any h eriticisms from Hong Kong, It might, be pointed out that the

howw.

b

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

L

mid 1971 or indeed at the end of 1967.

1.

Moreover Because of Hong Kong's extreme dependence on

external trade, and, particularly as far as imports of

Sam

with UK concurrence

commodities for local consumption are concerned, on trade with China, Hong Kong felt it necessary

to

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

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

sterling.

8.

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 &

of the 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.

1. 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