TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 33

CONFIDENTIAL

Hong Kong call into question the desirability of our continuing

to bend over backwards on her behalf, since she only bites the

hand that feeds her! The political case is therefore ambivolent

but its existence should not be forgotten.

If we do not offer a special arrangement, and there are

no Agreements of any sort, we risk the Hong Kong authorities

and the banks selling (if they have not started to already)

their not insubstantial holdings of sterling (approximately

£750 million in January) which could drive down the rate and

accentuate the problem already being experienced of high import

prices undermining the UK Government's prices and incomes policy.

This would make the negotiations for Stage Three that much more

There would also be a risk of political ructions

difficult.

with Hong Kong, which HKIOD would no doubt be in a better

position to assess.