TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 96

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HONG KONG'S FINANCIAL PROBLEMS

Mike Gnest

27/7.

1. On 16 July Mr Royle discussed the situation in Hong Kong

with Mr Marshall, Mr Holland, Miss Pestell and myself.

2. We agreed that a number of difficult problems were pending

for Hong Kong. The present Sterling Agreements expire on

what

24 September. A decision onfif anything should replace them is

under consideration by the Prime Minister. We cannot yet say

when a decision is likely to be taken, and it is not possible

to say anything useful to Hong Kong in advance of the decision.

All concerned are of course aware of Hong Kong's interests.

3.

The expiry of the present Sterling Agreement, whether or

not it is succeeded by a similar arrangement, is likely to

highlight the need for solutions to a number of fundamental

problems of financial structure and management which have been

pending in Hong Kong for years. These include the management

of the banks and financial institutions generally as well as

the control of the reserves and the winding up of the Hong

Kong Government's own guarantee to the banks.

4.

A further problem which came to attention recently is the

question of Hong Kong's exchange-rate policy. The Hong Kong

dollar is at present tied to the US dollar, so the recent

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