TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 86

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ORWELL

TO IMMEDIATE F C O TELNO 817 OF 26TH JULY, 1973.

YOUR TELEGRAM NUMBER 726.

STERLING GUARANTEE AGREEMENT.

YOUR PARAGRAPHS 1 AND 2: SINCE 10 JULY THE RATE FOR U.S. DOLLARS HAS STEADILY STRENGTHENED (ALTHOUGH A TEMPORARY WEAKNESS APPEARED ON 19TH 20TH) AND TODAY IT STANDS AT HK DOLLARS 5. 04 1/4. SO FAR, THEREFORE, WE HAVE NOT FOUND IT NECESSARY TO INTERVENE AGAIN.

2. YOUR PARAGRAPH 3: THERE IS A SERIOUS MISUNDERSTANDING HERE. THE AGREED PURPOSE OF THE HADDON-CAVE/BELL FACILITY WAS TO PERMIT THE TRANSFER OF PART OF BANK OWNED STERLING AT PRESENT COVERED BY THE EXCHANGE FUND GUARANTEE SCHEME (AND HENCE THE STERLING GUARANTEE AGREEMENT) INTO NON-STERLING DENOMINATED ASSETS. SALES OF STERLING BY PARTICIPATING BANKS AGAINST HONG KONG DOLLARS TO MEET NORMAL COMMERCIAL OBLIGATIONS ARE A SEPARATE ISSUE. FROM THE FOURTH QUARTER OF LAST YEAR THE HONG KONG BANK WAS UNABLE TO BUY SUFFICIENT STERLING ON THE LOCAL MARKET TO MEET THEIR CONVENTIONAL OBLIGATION TO PROVIDE STERLING ON DEMAND, PARTICULARLY TO MEET THE BANK OF CHINA'S REQUIREMENTS: AND, AS THE BANK WAS AT RISK ON ANY REDUCTION OF THEIR ACTUAL STERLING HOLDINGS BELOW THE AMOUNT COVERED UNDER 'THE SCHEME, THE HADDON-CAVE/SAYER STANDBY FACILITY WAS 140 NEGOTIATED (OUR TELEGRAMS 777 AND 778 OF 25TH AUGUST 1972 REFER).

1972

AS THERE HAS BEEN INSUFFICIENT FOREIGN CURRENCY ON OFFER ON THE LOCAL MARKET IN RECENT MONTHS FOR THE HONG KONG BANK TO SUPPLY THE BANK OF CHINA AND TO DIVERSIFY AS WELL, THE RUN DOWN OF THE BANKS STERLING HAS BEEN LARGELY AGAINST HONG KONG DOLLARS.

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