TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 23

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diversification facility which was granted only to the Hong Kong Bank.

In the event as the Hong Kong dollar was weak at the time the sterling

released was used both for direct market intervention and for indirect

support by way of the sale of sterling to the Bank of China. More

recently, as a result of the weakness of the U.S. dollar, the Hong Kong

dollar has been strong and the U.S. dollar has been supported both by

the Exchange Fund and, according to current cables from Hong Kong,

also by the banks by sales of Hong Kong dollars presumably for their

own account. It should be noted that when the Exchange Fund acquires

U.S. dollars they accrue to Hong Kong's official reserves and will thus,

other things being equal, reduce the proportion held in sterling for

MSP purposes but when the Hong Kong Bank and other banks buy dollars

they do not count as part of official reserves unlike the banks'

guaranteed sterling.

In addition to the Exchange Fund and the commercial banks,

independent foreign exchange dealers and brokers, three or four of

which are branches/subsidiaries of London firms, also operate in the

market.

1

Hong Kong's exchange policy must always take into account

that China is an important trading partner supplying about 16% of the

Colony's retained imports and, in particular, about half of her food

imports, an important element in the cost of living. However, the

largest supplier to Hong Kong is Japan whose exports to the Colony

represent about 26% of retained imports. A large part of China's

foreign exchange receipts from and through the Colony accrues to her

in Hong Kong dollars which she has traditionally converted into

sterling: part of such sterling has been used direct to pay for

imports and part is thought to have been converted into other European

currencies mainly in Paris. China's concern looks hitherto to have