SECRET
increase by about £135m.
9.
Altogether the HongKong authorities expect that total sales of sterling would be of the order of £240m.
10. The HongKong authorities were not greatly concerned about the effect of such diversification on the gilt-edged market. They suggested however that if the HongKong Government were to sell of the order of £13.5m, and the HongKong banks £8.4m, per month, ie a total of about £22m per month over 12 months, this would not be very much different from the existing Haddon-Cave/Bell arrangement whereby a diversification of £20m per month had been allowed. The HongKong representative stressed that the similarity between the figures they were now suggesting and those in the Haddon-Cave/Bell facility was coincidental.
11.
The HongKong representative suggested that, if such an arrangement appealed to HMG, it could be implemented by either of two methods
(a) a guaranteed rate could be fixed valid for the period of
phasing and all sales would be at this rate or the market rate if higher. HongKong would undertake to make all sales through the Bank of England. The rate could either be an arithmetic average of spot rates or a negotiated
rate;
(b) The HongKong authorities could enter into a series of swaps with the Bank of England at an agreed rate.
12. The HongKong authorities warned that, if such an arrangement were agreed, they might still have to see later whether some further diversification might be needed.
Haddon-Cave/Bell Facility
13. There was some discussion about the present status of the Haddon- Cave/Bell facility. In the view of the HongKong authorities, the sales of sterling to China, which came from the colony's reserves, could not be regarded as being relevant to the facility. The facility was intended to moderate diversification.
14. The British representatives argued that the purpose of the Haddon- Cave/Bell facility was to alleviate what the HongKong banks regarded as
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