TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 195

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in sterling balances will depend on a number of factors such as movements in international interest rates.

Over the past 10 years exchange reserves in sterling as a proportion of world exchange reserves have declined from 8% to

about 5%.

D.

INTERNATIONAL ARRANGEMENTS AFFECTING THE STERLING BALANCES

The Basle Facility

1..

At the time of the devaluation of sterling in 1967 the re already existed an arrangement with member countries of the B.I.S. for offsetting the effect on U.K. reserves of fluctuations in the

sterling balances. This dated from May 1966 and provided cover

up to $1,000 mn. The facility fell due for review in the Spring of 1968 and consideration was given to adapting the principle to

a longer term facility which would underwrite potential

diversification of the OSA balances.

Discussions in Basle

suggested that a safety net of some $2,000 mn. might be provided

via the B.I.S. but the Besle central bankers wished to see the CSA

involved in parallel stabilisation arrangements and considered

that these could only be achieved if the U.K. guaranteed the

official sterling holdings.

2. The U.K. then launched an intensive negotiation with OSA

countries in July 1968 which ended with the signature of the

terling Agreements in September 1968, and the conclusion of the

11el "Bagle Second Group Arrangement" which supported the

ee embodied in the Agreements.

countries* and the B.I.S. agreed to allow the U.E. to

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