TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 249

DRAFT TELEGRAM TO HONG KONG

Your Telno.188 of 17th February.

t

On the question of the arrangements to follow after the expiry of the Sterling Agreement we are not in a position to add anythi

dard in

at present to the third paragraph of Keeble's letter to you of 16th February.

cosmernce of the devaluation of the us It is appreciated that in Hong Kong dollar terms there has

in Hong Kong dettarlema

We

a. dollar

and won reais.

to maintain the gold pains of the long Vane dollar, the boon an increased loss, based on current marleedrater on your sterling

he

But

4

reserves If a larger part of your reserves had been in U.S.dollars -

This is on roblem all over the wei

[the only practicable alternative reserve currency the overall loss

would of course have been greater.

2 3.

-

wvillos

of

We Sully accept that

and! Her contomed bidos de net make the theme Stan

You mention that when sterling re-fixes you will be faceding gue with several difficult questions. In relation to the first of those

of there. Matuma ng cool for you

On

listed, L.e. the extent to which you can afford to maintain the present

you will presumably contine exchange value of the Hong Kong dollar, your paragraph 2 mentions that

to be gunded by

Gas Well

Á

the unchanged gold parity of the Hong Kong dollar following the devaluation of the U.S. dollar was welcomed locally. This was no doubt because it was in Hong Kong's interests in relation interalia to your food imports from China and the importance of textilepte

by the IME Poules. generally subject to quotas, in your exports. Seen from here- considerations seem likely to continue to be of paramount importance.

We tho

~ to mali It is also relevant to record that any change in parity would have had to be justified by H.M.G to the I.M.F. and a full supporting oase would-have Been' roqütrod.

al.

Th

m crea

A esse!

on t

we realise der The future, of the Exchange Fund Guarantee Scheme, is a the recent asschang rate variation, have

A coul separate qu

to you of the guarantex. Thes equeation from the appropriate parity of the Hong Kong dollar

crecis on to nid

the id party of the Hong Kong dollar which as suggested above has to be assessed in the light of the

mah-t your deción performance and prospects of the Hong Kong economy as a wholer Indeed, the recent turn of events reinforces the arguments set out in the memorandum which accompanied Keeble's letter of 16th February concerning the desirability of issuing local paper to the banks in exchange for their excess foreign exchange holdings. Under the present arrangements the obligation to recompense the banks in sterling for changes in the Hong Kong $/sterling rate merely reduces official sterling holdings by the amount of such payments and these payments would not be necessary if the banks' excess sterling assets were held centrally as is the normal practice elsewhere. We hope, therefore, that these points together with those in the memorandum will be given very serious consideration.

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