TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 107

IDEAS TO THE CONTRARY IN WHITEHALL, I CAN ASSURE YOU THAT THE HONG KONG GOVERNMENT WOULD USE SUCH NEW LIBERTY WITH THE UTMOST

RESPONSIBILITY. NOT ONLY WOULD THIS BE IN ITS OWN INTEREST AS A MAJOR HOLDER OF STERLING, BUT SINCE ITS STERLING HOLDINGS ARE IN THE LONG END OF THE GILT EDGED MARKET IT COULD NOT SWITCH WIT T

SUBSTANTIAL LOSS.

3. AS YOU KNOW IT IS MY VIEW THAT IT IS THE ELEMENT OF CONTROL AND COMPULSION IN THE OLD GUARANTEE CONCEPT WHEN COUPLED WITH HONG KONG'S EXCEPTIONALLY HIGH M.S.P. THAT HAS MADE THE FINANCIAL RESULTS OF THE FORMER ARRANGEMENT SO DIFFICULT TO DEFEND POLITICALLY, AND THAT THIS HAS A MAJOR AND CONTINUING EFFECT ON UK/HONG KONG RELATIONS. IT AFFORDS GROUNDS FOR CRITICISM WHICH ARE OPEN

TO COMMUNISTS AND OTHERS TO EXPLOIT AND PREVENTS UNOFFICIALS AND THE PRESS VIEWING THE RESULTS OF OUR STERLING INVESTMENTS IN AN

OBJECTIVE WAY.

4. HADDON-CAVE AND I THINK THAT THE LOSS OF THE NEW GUARANTEE WOULD BE AN ACCEPTABLE PRICE TO PAY FOR DISPOSING OF THIS LONG- STANDING SOURCE OF FRICTION. WE WOULD THEREFORE VIEW WITH COMPOSURE THE REJECTION OF THE SUGGESTION IN MY TELEGRAM 1117. THIS WAS MADE IN RESPONSE TO ADVICE OFFERED BY EX. CO. UNOFFICIALS WHO WERE INCLINED TO SEE THE RECOMMENDATION IN PARAGRAPH 22 OF THE EX. CO. MEMORANDUM AS SELLING OURSELVES SHORT.

5. I THOUGHT YOU HAD BETTER KNOW OUR THINKING ON THIS SO THAT YOU SHOULD NOT MOUNT A LAST DITCH DEFENCE OF OUR PROPOSAL, THOUGH THE LATTER IS SOMETHING WE WOULD BE PERFECTLY PREPARED TO LIVE WITH.

MACLEHOSE

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