TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 203

S. E C R E T

NEWER OF THE STERLING AREA: AND INDEED OF THE WORLD, GIVEN THE I PORTANCE OF STERLING AREA ARRANGEMENTS IN THE WORLD AS A WHOLE, THAT THE STERLING DALANCES SHOULD REHAIN STAPLE DURING THE PERIOD.. BETWEEN WOW AND WHENEVER WE ACHIEVE A SATISFACTORY INTERNATIONA GEFOR TO THIS END, IT WOULD EVIDENTLY BE HELPFUL TO HAVE THE L BALANCES COVERED BY SOME RENEWED AGREEMENT EXTENDING DEYOND 1973.

I HAVE IT IN MIND THEREFORE THAT WE SHOULD NOW EMBARK, UPON A GENERAL REVIEW OF THE AGREEMENTS, NOT ONLY TO CLARIFY ANY TECHNICAL QUESTIONS ARISING ON THE EXISTING AGREEMENTS, BUT ALSO TO CONSIDER JOW THEY MIGHT BE REVISED AND EXTENDED FOR OUR MUTUAL BENEFIT.

MY FIRST SUGGESTION IS THAT ANY NEW ARRANGEMENTS SHOULD RUN - UNTIL 1975. IT WOULD BE APPROPRIATE TO MAKE PROVISION FOR A REVIEW

IN THE SPRING OF THAT YEAR WHICH WOULD ENABLE US ALL. TO CONSIDER WHETHER THE AGREEMENTS SHOULD BE CONTINUED THEREAFTER AND, IF SO,

IN WHAT FORM.

#7.

SECONDLY, THE EVENTS WHICH HAVE LED TO THE FLOATING OF THE POUND HAVE DEMONSTRATED ONCE AGAIN HOW MUCH WE ARE ALL EXPOSED TO THE DESTABILISING EFFECT OF INTERNATIONAL CAPITAL MOVEMENTS. IT WAS ON THIS ACCOUNT THAT I WAS OBLIGED TO EXTEND EXCHANGE CONTROL TO LIMIT THE RISK OF OUTFLOW OF RESIDENT CAPITAL

FROM THE UNITED KINGDOM TO THE STERLING AREA. THE PROBLEM OF

CAPIT

*

L MOVEMENTS ! HOWEVER, A CONTINUING ONE, AND WE SHALL HAVE TO DISCUSS WITH YOU THE STEPS WITCH SHOULD BE TAKEN TO DEAL WITH IT IN FUTURE IN WAYS WHICH WILL CAUSE THE LEAST POSSIBLE

DISTURBANCE TO THE NORMAL FLOW OF TRADE AND PAYMENTS BETWEEN US, WHILE MINIMISING DISTURBANCES OF THE SORT WHICH HAVE RECENTLY

. BEEN SO TROUBLESOME.

3. MY THIRD POINT IS THAT THERE SHOULD BE SOME LIMITATION ON THE AMOUNT OF STERLING COVERED BY THE GUARANTEE. MY IDEA

IS. THAT THE GUARANTEE SHOULD BE LIMITED TO THE AMOUNT OF

GUARANTEED STERLING WHICH YOU HOLD AT THE DATE OF SIGNATURE OF THE NEW AGREEMENT, PROVIDED THAT THIS IS NOT HIGHER THAN THE A MINT YOU HELD GUARANTEED AT THE CLOSE OF BUSINESS ON 34 JUNE

IT WOULD FOLLOW, OF COURSE, THAT THE MSP WHICH YOU ARE NEQUIRED TO HOLD UNDER THE AGREEMENT SHOULD NOT APPLY TO ANY

HICREASES IN THE LEVEL OF YOUR RESERVES ABOVE THE FIGURE WHICH

DETERMINES THE LEVEL OF THE GUARANTEE.

19.

FOURTHLY IF