TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 47

SECRET

1.8.73

MR.MCMAHON 0/R

اسه

Copies to:

Note handed out of dry meeking an spurt of you

the abe (12)

3

Have

The Chief Cashier

Mr.Fenton o/r

Mr.Hallett

Mr.Payton o/r Mr. Ewbank Mr, Barber Mr.Rackham Mr.Kirby o/r Group 3E

Hong Kong A Special Sterling Guaraktes férangement

You wished to have a meeting (since arranged for 12.30 p.m. on Thursday, 2nd August) to discuss the possibility of offering soma

snaciaj guarant

to Hong. KWANE•

I attach a draft note on the subject which is to form the

basis for a discussion at the Treasury at 3.00 p.m. on Friday,

3rd August. In view of the complexity of the matter and the proximity

of the Treasury meoting I have already circulated copies in Whitehall

with the warning that the views expressed aro porsonal.

I fear the note de very loag partly because it deals with

difficult territory and partly because I have thought it necessary to

cover past developments in order to focus on the difficulties which

the arrangements in force in Hong Kong hitherto have created for the

Govemment there.

I do not come down in favour of, or against, a special

arrangement, which would not be justified merely becauso Hong Kong is a Colony, but pose the question whether, with potentially very volatile sterling reservos of about £660 mn., of which around half could well be

diversified, we should seek to neutralise a sum of that order of

magnitudo. A view on that needs to be taken in the general sterling

contoxt.

As to the nature of a possible quarantee I reject the resuscitation, of the 1968 Hong Kong dollar bond arrangement in favour