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8. On 6 July, 1972 the Hong Kong Government told the banks
that whereas their 6 July sterling positions would remain
covered, further accruals would not be accepted for cover.
This meant exchange control having by then been ended
that
the banks could place their excess liquidity in sterling or in
non-sterling assets.
They
9. When cover under the Sterling Agreements ends, there will
be no necessity for the Hong Kong Government to renew or renegotiate the terms of the Exchange Fund Guarantee Scheme,
although they may well be asked by the banks to do so.
will therefore no longer be placed in the position they were in
under the Scheme of maintaining the HK dollar value of the
commercial banks sterling, whilst themselves receiving only a
US dollar value guarantee.
10.
Alternatively, the Government might come under pressure
from the banks to establish a local money market. There is
no substantial reason why this should not be done although the
Hong Kong Government have resisted the suggestion, and HMG
have been arguing strongly in favour of this over the last year
(Mr Keeble's letter of 16 February to the Governor). Hong Kong
is a sophisticated financial centre and her institutions should
keep pace with her financial status. In the absence of such a
market and with no form of guarantee, the banks would be
inclined to demand that they should be free to dispose of their
This external assets to protect themselves as best they can.
would have serious implications for the Hong Kong authorities
in that they do not at present possess formal exchange control
powers.
/HONG
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