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policy.
The Hong Kong dollar is at present tied to
the US dollar, so the recent weakness of the latter
has forced down the value of the Hong Kong dollar in
terms of other currencies, thus making her imports more
expensive. When the Hong Kong authorities were
recently obliged to take in US dollars to maintain
the US/Hong Kong dollar rate, we suggested that they
should consider breaking the link; but the immediate
crisis passed without that being necessary. It is
not impossible that Hong Kong will face a similar
crisis again if the US dollar remains weak, and We
are of course watching the situation and will be ready
to offer further advice. The Bank have given a good
deal of thought to the various alternative exchange-
rate policies which might meet Hong Kong's needs better
than their present one. Consideration is being given
in Whitehalf to the question of whether and when it
will be appropriate to put these thoughts to Hong Kong.
5. It will we think, be desirable to keep the
discussions of these different problems separate so
far as is possible. There is inevitably an element
of an adversary relationship in discussions between
HMG and the Hong Kong Government on the Sterling
Agreement. On the other hand we have no particular
axe to grind, apart from our general interest in seeing
Hong Kong well-administered, in promoting better
financial management in Hong Kong. It would be a
pity if disagreements between us on the Sterling Agreements came to infect what we hope will be a joint
and careful examination of this problem. A further
point is that the timetables for, and the participants
/in
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