TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 135

IMMEDIATE

CYPHER CAT A

GRS 350

S.E CRE. T

FCO 118925Z

LABI

SECRET

ORVELL

187

(MF 9/393/1)

(11)

file

TO IMMEDIATE GOVERNOR HONG KONG TELNO 675 OF 11 JULY 1373.

(39).

C&

YOUR TELEGRAMS NOS 728 AND 741. STERLING AGREEMENTS.

PERSONAL FOR GOVERNOR AND HADDON-CAVE.

2

THE PRESENT DISTURBED SITUATION IN THE FOREIGN EXCHANGE MARKETS

IS HAVING UNPLEASANT CONSEQUENCES FOR ALL OF US.

THE MAINTENANCE OF THE SP IS HOWEVER AN ESSENTIAL PART OF ALL STERLING AGREEMENTS, AND THE GUARANTEE IS DEPENDENT UPON IT,

A BREACH OF MSP THEREFORE HAS, LECALLY, THE EFFECT OF TERMINATING THE GUARANTEE, WE REGRET, THEREFORE, THAT IT IS NOT POSSIBLE FOR US TO AGREE TO THE REQUEST IN YOUR TELEGRAM NO 728.

2. WE ARE, HOWEVER, PREPARED IN THE SPECIAL CIRCUMSTANCES NOT TO REGARD THE MINOR BREACH REPORTED IN YOUR TELEGRAM NO 741 AS A FORMAL BREACH OF THE AGREEMENT, ON THE UNDERSTANDING THAT THE PROPORTION OF STERLING IN YOUR TOTAL RESERVES FALLS NO FURTHER AND

THAT THE #SP IS RESTORED SOON, AND HI ANY CASE NOT LATER THAN

THE END OF NEXT MONTH, WE RECOGNISE THAT BANKING CIRCLES AND THE

UNOFFICIALS MAY DE CONCERNED ABOUT THIS ASPECT OF THE WORKING OF THE AGREEMENT, AND WOULD SUGGEST THAT IF ANY EXPLANATION IS NECESSARY YOU SHOULD BASE YOURSELF ON THE TEXT OF THE AGREEMENT

BETWEEN US,

17.7

3. ON A BROADER, BUT CLEARLY RELATED ISSUE, WE HAVE NOTED THAT, FOR EXAMPLE, MALAYSIA AND SINGAPORE HAVE RECENTLY UNPEGGED THEIR CURRENCIES FROM THE DOLLAR WHEN DOLLAR INFLOWS BECAME TROUBLE-- SOME. ACCORDING TO REUTER, THE REN MIN BI HAS BEEN REVALUED BY

5 PER CENT AGAINST THE HONG KONG DOLLAR. IT OCCURS TO US THAT THE HONG KONG DOLLAR MAY BE UNDERVALUED IN RELATION TO A RANGE OF OTHER CURRENCIES, WITH CONSEQUENTIAL EFFECTS ON IMPORT PRICES.

DOUGLAS-HOME

ORWELL DISTRIBUTION

FRO HKLOD

PS

MR WILFORD

SECRET

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