TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 114

CONFIDENTIAL

675

DRAFT TELEGRAM TO HONG KONG

Your telegram 761 and our 693

We note that you will restore MSP as soon as possible and no later than 31 August. (The legal position remains as outlined in paragraphs 1 & 2 of our telegram 765. We appreciate that technical factors may mean temporary and unavoidable alterations in the proportion which sterling represents in your reserves and we are prepared to look at such events in retrospect providing that the end-month position is correct.

2.

We cannot accept that any sterling purchased in order to restore and maintain your MSP should be guaranteed at the ration

date of purchase.

3. We do not understand the reference in paragraph 5 of your telegram 761 to approximately £80 million of the £100 million remaining to be utilised. It was our understanding that the facility had been virtually used up by end-April (Blye mentioned to Payton in early May that £90 million out of £100 million had been taken up with providing sterling for the Bank of China). But if more of the facility remains perhaps you could consider allowing some of it to the Chartered and Hang Seng Banks.

4. We still believe that the best way to cover an open position in sterling in the commercial banks is to provide suitable Hong Kong dollar assets for them to hold (and we should be glad to have a reaction to the memorandum enclosed with Keeble's letter of 16 February).

5. We appreciate your difficulties over the uncertainty of the future of the sterling agreements. The Chancellor will be in touch with his colleagues in signatory countries as

soon as possible.

4. His hand, the possibility 1

CONFIDENTIAL

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