TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 49

SECRET

3

Way

order to make a start with the latter (in addition

to (a) above] and to avoid any further depletion of

the Government's sterling reserves.

By oversight my note omits any mention of MSP, but obviously

the limited guarantee concept would be appropriate.

I suggest a modest start should be made with the issue of

local paper in any event H.M.G. have always said there would be no

compulsion on the banks to take it up

>>

in order to see how tho

general arrangements would work in practice and therefore any now

Agreement should be limited to, say, six months to review the situation

with the object of extending the Agreemont with, if appropriate, the

guarantee covering a lower percentage of bank sterling and a

correspondingly increased issue of local paper.

Finally, time is limited. Even if an affirmative decision

were to be taken in good time by H.M.G. the Hong Kong Government would

probably be unable to complete discussions with the banks and make the

necessary technical arrangements by 25th September. Thus, in the first

instance it would probably be necessary for H.M.G. to give a temporary

new guarantee covering 100% of both the Government's and the banks'

sterling but for a strictly limited period pending the introduction of

the linked scheme.

1st August 1973

D.F.S.