TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 133

IMMEDIATE

CYPHER/CAT A

FM HONG KONG 110935Z

SECRET [conny

SECRET

NKIS/I

TO IMMEDIATE FCO TELNO 755 OF 11 JULY. 1973.

MY TELEGRAM 741.

File

以起

羅

A

( પટ

REF.

U.S. DOLLAR CRISIS AND STERLING GUARANTEE AGREEMENT.

THE FOREIGN EXCHANGE MARKET WAS QUIETER YESTERDAY THAN MONDAY. WE BOUGHT US DOLLARS 2 MILLION AT HONG KONG DOLLARS 4.97 1/8 AND THERE WAS A SIMILAR AMOUNT OF BANK SUPPORT. THE RATE CLOSED AT HONG KONG DOLLARS 4.97 1/8.

2. TODAY THE MARKET APPEARED TO BE BACK TO NEAR NORMAL. NO INTERVENTION WAS REQUIRED AND THE RATE STRENGTHENED TO HONG KONG DOLLARS 4.99 1/2 AT THE CLOSE. ONLY SMALL AMOUNTS OF STERLING WERE OFFERED TO THE HONG KONG BANK ON BOTH DAYS.

3. THE RMB WAS REVALUED AGAINST THE HONG KONG DOLLAR YESTERDAY BY 5 PER CENT (FROM RMB 38.00 TO RMB 36.11 EQUALS. HONG KONG DOLLAR 100). TODAY IT HAS BEEN ANNOUNCED THAT THE RATE HAS BEEN CHANGED

BACK TO RMB 37.95.

4. RUMOURED REASONS FOR THIS UNEXPECTED MOVE ARE VARIED. A LOGICAL

ONE IS THAT, ON THE EVIDENCE OF MONDAY'S MARKET, IT WAS ASSUMED THAT HONG KONG WOULD BE FORCED TO FLOAT OR REVALUE THEIR DOLLAR (DESPITE THE FINANCIAL SECRETARY'S ASSERTIONS TO THE CONTRARY) AND THE REVALUATION OF THE RMB WAS IN ANTICIPATION OF SUCH A MOVE.

A VARIATION IS THAT CHINA PURPOSELY TOOK THE LEAD TO SEE WHETHER WE WOULD FOLLOW).

5. THE FINANCIAL SECRETARY MADE A FIRM STATEMENT YESTERDAY EVENING

DESIGNED TO SCOTCH SPECULATION THAT WE NEEDED TO FLOAT OR

REVALUE AND CHINA'S REVERSAL TODAY MAY HAVE STEMMED FROM THIS,

PLUS THE ABSENCE OF UNUSUAL ACTIVITY ON THE MARKET.

6. WE SHALL ASSESS THE POLITICAL IMPLICATIONS OF THIS ODD INCIDENT

IN DUE COURSE.

MACLEHOSE

"

FINANCIAL DISTRIBUTION

FRD HKIOD

SECRET