TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 255

PRIORITY

CYPHER/CAT A

LAST

CONFIDENTIAL

17

REF.

LONG KONG 1734452

CONFIDENTIAL

ORWELL.

REF.

26

AVED IN RAGISTRY 5.51

TO PRIORITY FCO TELNO 188 OF 17 FEBRUARY 1973 HKK 5/1

STERLING GUARANTEE AGREEMENT.

Zee 18 PA

2

6.1

NOW THAT STERLING IS FLOATING DOWN FOR THE SECOND TIME FROM

US DOLLARS 2.60, THE LOSS IN HONG KONG DOLLAR TERMS ON OUR STERLING

RESERVES IS LIKELY TO BE VERY SUBSTANTIALLY GREATER THAN THE HK

DOLLARS 890 MILLION REFERRED TO BY THE FINANCIAL SECRETARY IN HIS

SPEECH IN LEGISLATIVE COUNCIL ON 13 DECEMBER LAST. SO, OBVIOUSLY,

WE SHALL BE FACED WITH SEVERAL VERY DIFFICULT QUESTIONS WHEN STERLING

REFIXES (E.G. THE EXTENT TO WHICH WE CAN AFFORD TO MAINTAIN THE; PRESENT EXCHANGE VALUE OF THE HONG KONG DOLLAR, THE FUTURE OF THE

EXCHANGE FUND GUARANTEE SCHEME AND WHETHER THE PREVIOUS STERLING

LINK SHOULD BE RE-ESTABLISHED). I DO HOPE, THEREFORE, THAT EARLY

ARRANGEMENTS WILL BE MADE FOR THE PROMISED REVIEW OF THE STERLING GUARANTEE AGREEMENT, FOR OUR DIFFICULTIES WILL BE COMPOUNDED

IF, AT THE TIME OF THE REFIX, THE FUTURE OF THE AGREEMENT IS STILL UNKNOWN.

2. ALTHOUGH OUR DECISION TO REVALUE THE HONG KONG DOLLAR IN RELATION

TO THE U.S. DOLLAR HAS BEEN GENERALLY WELCOMED HERE, IT IS

REALISED IN INFORMED CIRCLES THAT ONE UNFAVOURABLE CONSEQUENCE HAS

BEEN A FURTHER SUBSTANTIAL LOSS OF OUR RESERVES AND THIS IS BOUND

TO BE RAISED DURING THE FORTHCOMING BUDGET DEBATE. IT WOULD BE VERY HELPFUL, THEREFORE, IF ARRANGEMENTS FOR THE REVIEW COULD BE MADE KNOWN TO US WITHIN THE NEXT 2 3 WEEKS,

MACLEHOSE

ORWELL DISTRIBUTION

FRD

HKIOD

CONFIDENTIAL

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