TNAG-0374-FCO40-420-Discussions-with-Sir-Murray-MacLehose--Governor-of-Hong-Kong-1973 — Page 190

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to manage the Government's own foreign exchange reserves instead of just letting them lie in London. At present they have neither the skills nor the manpower to do this. Fortu- nately, because of favourable interest rates in London and the weakness of the US dollar, they are not likely to want to do anything drastic quickly. But the need for management will be

there.

5. This means that, if we tell the Hong Kong Government in, say, August that the Sterling Agreement will end without replacement in September, they may lose an additional £50 million from their official reserves and will have to do a number of difficult things in a hurry. The juxtaposition of the final decision on the Mass Transit System contract in September is unfortunate.

6.

Moreover we have found that the worst tactic with Hong Kong is to present them with a fait accompli. They are capable of accepting unpleasant decisions provided that they can consult with us before the decision is taken. They have also been promised discussions on the Sterling Agreement in due time. They will resent being consulted at the last minute. They will resent it even more if it is apparent that the decision has already been taken.

7. This suggests that we should urge on the Treasury, first that the Chancellor should not take a decision on Hong Kong until there have been discussions with Hong Kong representativen, or that at least there should be sufficient flexibility in the decision on Hong Kong to make real consultation possible; and second that Hong Kong representatives should be invited to London for consultations in the very near future.

8. I have consulted Mr Holland who thinks that it might be unprofitable to ask an FCO Minister to write to the Chancellor, when the latter's reply would probably be that he has not yet got around to the question. It therefore might be better for the PUS to consult his opposite number in the Treasury and suggest any necessary variation in the Chancellor's brief. Bub before this I think we need an interdepartmental meeting within the next week. If you agree, perhaps I could suggest this to Mr Marshall?

5 July 1973

00: Sir D Watson

Mr Holland

or

Mr Marshall

w/o

Mr Franklin

SECRET

Vir Lewty

anclosure

Mn Orownnn/M» Goodfollow

ΟΥ

Dest

A C Stuart

Hong Kong & Indian Ocean Department