TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 181

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HONG KONG GOVERNMENT STERLING

11.

Freedom of diversification would give Hong Kong even greater

autonomy than she at present enjoys. To this extent the move

might be welcome. It will however place greater responsibility

on the Financial Secretary and may well be unpalatable to him.

He will no longer be able to blame HMG for an adverse effect on

the value of Hong Kong's reserves whether they remain in

sterling or not. Hong Kong has traditionally wanted both to

have its cake and eat it so that we are likely to face continuing

opposition in this quarter. As the message from the Chancellor

to the Sterling Agreement Signatories will issue in July, this

may create problems in respect of the award of the Mass Rapid

Transit System contract which should be decided about the same

time.

SUMMARY

12. Whilst the Hong Kong Government can be expected to react

adversely to the news at first, there are grounds for supposing

that it will not be altogether unwelcome. It will add to her

financial independence and international stature and could

enable her to bring to an end her guarantee scheme with the

banks which has become a heavy liability.

We should be very

willing to advise over the setting up of a local money market

to absorb the commercial banks' sterling. In return HMG might

be asked to agree to some form of interim bilateral arrangement

for a limited period pending the establishment of such a market.

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