TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 172

the suggestion on various grounds, including a dislike of Government

debt as such which it was feared could be inflationary, and

subsequently a paper countering the objections raised and setting out

the advantages of the proposal both for the banks and the Hong Kong

Government was enclosed with a letter of 16th February 1973 to the

Governor by Keeble (F.C.o.). No reply has been received. The

Governor and the Financial Secretary have said that their main

objection to the proposal is that if the reserves were to be centralised

before the conclusion of new arrangements for sterling this would

strengthen the bargaining position of H.M.G. in that the latter would

no longer need to be concerned with possible action by the banks.

The majority of the banks however would appear to favour a voluntary

scheme enabling them to hold local paper combined with lender of last

resort facilities.

Desirable Regulatory Powers and Institutional Changes

From the foregoing a disinterested, third party expert would

undoubtedly conclude that:

(1) a thorough investigation on the spot of the banking

situation is required:

(2) subject to detailed points thrown up by (1) above,

the establishment of a Monetary Authority with all

the normal powers which should extend to finance

houses and other fringe financial institutions

including possibly the imposition of exchange control

--

and

or reserve powers to that end, is a matter of some

urgency.

He would be right: but the situation in Hong Kong is not

There are two

susceptible to such a black and white approach.

important factors to consider:-