TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 276

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HONG KONG: I 1. O' HON" KON" "OVERNMENT PAPER

Note of a meeting held at the Treasury on 16 January 1973

The following were present:-

Mr R G Lavelle

Treasury

Mr HBC Keeble

Kr D G Holland

Mr AC Stuart

PCO

معد

detion Lies

with the Treasury

AA

Mr R H Turner

Bank of England

Kr DF Stone

Mr T G Underwood

Treasury

The meeting considered the letter from the Governor of Hong Kong to

Bir Denis Greenhill abort the issue of Hong Kong Government paper and the underlying problem of Hong Kong bank holdings with a view

to drafting a reply. The meeting had before it a commentary on the lovernor's letter, prepared by Mr Payton of the Bank of England.

NEED FOR CHANGE

2.

It was agreed that the United Kingdom's proposal that Hong Kong government paper should be issued to the banks in return for their sterling holdings was desi,ned to deal with an underlying institutional

difficulty in Hong Kong and should not be seen as a substitute for an exchange guarantee for Hong Kong's sterling reserves, The institut- ional problem, which could be expected to give amuse for complaint whenever there was a devaluation of the foreign currencies held by the bank in terms of the Hong Kong dollar, was that the bank's

liabilities were expressed largely in Hong Kong dollars while their

assets were denominated larvely in foreign currency, at present mainly sterling. It would therefore be desirable, particularly in a situatior of generally greater exchan e rate Mexibility, that the Hong Kong banks should be able to match their Hong Kong dollar liabilities with Hon long dollar asects. The events following the 1967 sterling

devaluation and the more recent implementation of the Sterling

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