TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 181

XCS(73)9

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If this situation alters then it would have to be made clear in any exchange of messages with the British Government that the possibility of some sales would be a matter for discussion, Further accruals of sterling (i. e. interest payments and other miscellaneous receipts) would be invested, of course, in sterling or non-sterling assets in accordance with our own best judgement, As regards (b): forward sales by the banks have already influenced the spot rates of exchange for sterling and will have no further influence on the market when deliveries are effected.

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This is as far as we can go and should meet the British Government's objective of stabilising the situation for an interim period, but careful consideration will have to be given to the form of the exchange of messages with the British Government and how the public relations aspects (local and overseas) are to be handled.

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In considering this proposed course of action, Honourable Members should note that, effectively, a substantial degree of diversification will have been achieved, that is to say:

Statement IV:

Position after 24th September

(after allowing for forward sales of bank sterling for other currencies plus sales of sterling paid over to the banks in settlement of the Exchange Fund Guarantee Scheme)

Government

Sterling assets

Non-sterling assets

£mn

347

82

Banks

Sterling assets

60

Non-sterling assets

179

Total Official External Reserves

668

Total Official Sterling Reserves

407

30.9%

.. Minimum Sterling Proportion

Note: The figure for non-sterling assets held by the banks does not include

the banks' open positions in foreign currencies (larger since 23rd June 1972) or the amounts withdrawn from the Exchange Fund Guarantee Scheme for diversification prior to 24th September 1973. For the record, it should be stressed that this position has not resulted from any moves by the Hong Kong Government, but solely from the actions of the banks which we were powerless to prevent and which we warned London would be their prudent reaction to the Treasury's inability to put forward proposals for the post-24th September period well in advance. Nonetheless to refer to the de facto diversification which has taken place in any public statements would be highly embarrassing to the British Government and would probably affect the market adversely. On both counts, therefore, such publicity would be detrimental to the Colony's interests.

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