TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 224

you may be faced in this context but cannot hold out

the prospect of early negotiations in present

circumstances.

3.

Following are observations on some of the specific problems indicated in your telegram:

a.

On the extent to which you can afford to

maintain the present exchange value of the Hong Kong

dollar, you say in your paragraph 2 that the

unchanged gold parity of the Hong Kong dollar follow-

ing the devaluation of the US dollar was welcomed

locally. This was presumably because it was in Hong

Kong's interests in relation inter alia to your food imports from China and the importance of textiles,

generally subject to quotas, in your exports.

Seen

from here, these considerations seem likely to continue to be of major importance.

b. On the Exchange Fund Guarantee Scheme, we

realise that the recent exchange rate variations will involve your making additional payments of sterling

to the banks out of your reserves. This is one of

the results of the decision to maintain the gold

parity of the Hong Kong dollar, which you will of

course have weighed in making your decision. This

result seems to us to reinforce the arguments set out in the memorandum which accompanied Keeble's letter

of 16 February on the desirability of issuing local

paper to the banks in exchange for their excess

foreign exchange holdings.

C.

On the question of whether the previous

sterling link should be re-established when a new

fixed parity for sterling is introduced, you will, we

(11516) Dd.392077 300m 10/68 G.W.B.Ltd. Gp.863

/ imagine,

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