TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 175

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XCS(73)9

16

(c)

- 6 ·

for we had to start moving now to a more balanced position. The case for doing so was self-evident and was underlined by the British Government's unwillingness to offer a guarantee in terms of Hong Kong dollars;

that our other criticisms of the unilateral offer are relatively insignificant when compared with the British Government's stand on the maintenance of existing M.S. Ps for all agreement countries, regardless of individual circumstances. criticisms are:

(i)

(ii)

(iii)

(iv)

(v)

(vi)

These

the application of the guarantee to the closing balance at 24th September 1973 (less forward sales) if this is lower than the closing balance on 29th March 1974 despite the obligation to maintain our M. S. P. throughout the period (particularly as we can expect our T.O. E. R. to increase over the next few months); the discounting of the value of the guarantee by its limitation to only 90% of eligible balances at 24th September 1973 or 29th March 1974 (whichever is the lower);

the difficulty of negotiating an extension of the arrangement to the banks in the time available;

the Chancellor's unwillingness to commit himself to prior negotiations for a successor arrangement after March 1974;

the requirement that M, S. Ps must be maintained at all times even if currency support operations involved the purchase of US dollars with Hong Kong dollars (thus increasing T.O.E.R. and reducing the proportion which J.S. R. bears to it); the possible difficulty of maintaining our M.S. P. in an era of high and rising interest rates leading to a decline in gilt edged prices and, therefore, a reduction in the value of sterling assets comprising our O.S. R.

In reply, British officials stated categorically that the unilateral offer contained in the Declaration was not negotiable in any respect. However, when the Financial Secretary pointed out that Hong Kong could not qualify for participation in the offer for arithmetic reasons (see paragraphs 17 et seq below), they admitted that Hong Kong's position was such as to deserve special treatment. To meet this, they suggested the following formula:

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