TNAG-0337-FCO40-373-Visit-of-the-Chancellor-of-the-Duchy-of-Lancaster--Sir-Geoff-1972 — Page 42

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shall want to continue to apply some degree of exchange control towards them to guard against the possibility of

These confidential future sudden capital outflows.

discussions are still proceeding.

If questioned by the

Press, Mr Rippon might reply that we cannot give any assurance about the abolition of our exchange control measures, because much will necessarily depend upon the conditions prevailing at the time when sterling ceases to

float.

4. In practice, our measures will have little effect on the most important sectors of our transactions with the OSA. In particular trade and direct investment are not affected. Our restrictions apply mainly to UK portfolio investment in OSA countries, most of which goes to developed Commonwealth countries; such investments now have to go through the investment currency market where a premium is payable. are also restrictions on the acquisition of property in OSA countries, and on other private transactions.

THE FUTURE OF THE STERLING AREA

There

5. A number of governments and individuals in the Sterling Area have construed our measures of 23 June as tantamount to "dismantling the Sterling Area." This, though understandable, is an emotional view, doubtless influenced by the speed with which we had to act and our inability to consult Commonwealth countries in advance.

6. Maintenance of the Sterling Area does not in fact depend upon sterling having a fixed parity, nor upon the absence of UK exchange controls in respect of the OSA (most Commonwealth countries already have exchange controls against fellow

The Commonwealth/Sterling Area members, including the UK). Sterling Area is a historical nexus of financial and economic

/relationships

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CONFIDENTTAT,