TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 115

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unprotected sterling position on the expiry of the Agreements.

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In the absence of any offers of renegotiation by the British Government, the Financial Secretary went to London again in November 1972 and obtained a concession whereby part of the banks' official sterling holdings could be transferred to private status and thus be eligible for diversification. A letter from the Treasury of 1st December 1972 confirmed that this arrangement would be effective until April 1973 "by which time we hope that a new Sterling Agreement might have been concluded covering the subsequent period".

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When sterling floated down from about US$2,60 to £1 for a second time in February of this year (after the devaluation of the US dollar) a further plea for the promised review of the Agreement was made to the British Government. The foreign exchange markets were closed for some weeks during this period and the British Government replied towards the end of March that the constantly changing situation made it impossible for them to hold out the prospect of early negotiations. (It seemed apparent at that time that the weakness of the US dollar and the absence of other reserve currencies might lead the British Government to believe that a renewal of the Sterling Guarantee Agreements after 24th September would not be necessary),

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In July, when the US dollar was under pressure on the local market, Hong Kong's M. S. P. was breached when the Government were forced to buy US dollars to maintain the Hong Kong dollar/US dollar at the support rate of HK$4,9706 to US$1. At this time (18th July) the Financial Secretary replied to a question in Legislative Council that "definitive negotiations have not yet started but we are in close touch with Her Majesty's Government in the United Kingdom".

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At the end of July, in a message addressed to Commonwealth Finance Ministers, the Chancellor of the Exchequer said that uncertainty in the foreign exchange markets (which made it impossible to determine a new fixed parity for sterling), together with the delicate state of discussions on both monetary reform and the United Kingdom's participation in the E. E. C. margins scheme, made it necessary "to continue to benefit from (the) element of stability built in to the international monetary system (by the Sterling Guarantee Agreements)". To this end, sterling holders would benefit "if aggregate sterling holdings were to remain at roughly the present level". The Chancellor said he would write again on the subject, "probably in early September".

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