اتا
(w/~/73
Mr Wilford
HONG KONG AND THE STERLING AGREEMENTS
1
Du
6/ui
You asked for an assessment of the effect on Hong Kong if the Sterling Agreement is not renewed. The attached useful paper has been prepared by Economists Department, FRD and Mr Goodfellow.
2. It is reasonably optimistic about the probable eventual consequences, but stresses the problem of the banks' sterling. I understand from Mr Holland that there is still no decision about the future of the Sterling Agreements. The possibility of ending them without replacement is with the Chancellor on the recommendation of Treasury officials. I also understand that Mr Marshall has written once to urge the need for an early decision and is about to do so again.
3. There is one practical problem for Hong Kong, the full implications of which are not covered in the paper. If the Sterling Agreement is not renewed, the Hong Kong Government wil). presumably have to wind up its own arrangement with the banks, by which the Hong Kong dollar value of their sterling holdings was guaranteed. This arrangement was frozen on 6 July 1972, but in order to liquidate it altogether the Hong Kong Government may have to pay compensation to the banks based on the Hong Kong dollar/sterling rate at the time of liquidation. Sterling hng recently appreciated against the US dollar, so no question of further compensation for Hong Kong under the UK Sterling Agree- ment arises. However, sterling has slipped further against the Hong Kong dollar from 14.418 on 1 July 1972 to 13.105 on 1 June 1973. It is still falling. If the banks' holdings of official sterling are about £470 million, this might mean that, in round figures, the Hong Kong Government could lose a further £50 m. from its own official reserves in winding up its own guarantee to the banks. This potential loss arises from the nature of Hong Kong's own imprudent guarantee. But it will not help to reconcile the Hong Kong Government to the ending of the Sterling Agreement.
4.
They would also face another practical problem.
The Hong Kong banks will naturally demand something else to replace their guarantee from the Hong Kong Government. They cannot operate commercially for any length of time with Hong Kong dollar liabilities and foreign currency assets. The obvious answer ja Hong Kong paper. We have pressed this on the Hong Kong Government, They have procrastinated. But this will not stop them blaming
us if they have to introduce it at no notice because of the sudden ending of the Sterling Agreement. Nor do they have the managerial and manpower resources to do this in a rush. Similarly, the end of the Sterling Agreement would mean that they will have
/to manage
STORET ·
"
1
No comments yet.
Private notes are available after approval.