TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 202

The Daily Telegrap

1.0.1

COMMENT

By KENNETH FLEET

gkong may pull rug from under ster

certain I understand that refuse the new terms offered

countries to persuade bulk of their sterling charge for a guarantee tomation of the pound. If Hong- accept, or if a better deal is

ted which the colony er major holders of no.ably Kuwait and Flow suit. Renewed pound could be severe.

tation is fraught with 1. not in the best of

statement was a hastily concocted formula to stop an ominously developing assault on the pound days before. In fact sterling opened very weak on the morning of Sept. 6 and dropped like a stone to $2.38 before the Bank of England supported it. Then the Treasury made its announcement of the extension. The selling during that morning and the day before had been prompted by

failure to consult sterling holders before announcing the extension.

The Chancellor's view however is not unanimously held.

Floating towards

the belief that no new guarantee would be monetary reform

given after Sept. 24 and a considerable swapping of sterling into stronger curren cies by holders of sterling balance would force the pound into the depths.

d add a painful Improving status

of the doller

# Minister as Phase ament's prices and

sterling is covered

s originally given holds 2900 million. Disle Arrangement stering were given a 50 p.c. of their sterling held that if the pound fell below balances would be " topped them. In return holders

reed to keep a mini- ir reserves in sterling. ent ran out on Sept. 24 Treasury hastily an- of the guarantees for bs. The new threshold

mise of compensation of starling falls below

The political situation in Hongkong at present is cut through with anti-British feel- ing (the case of the absconding English policeman is partly responsible) and it will need an act of considerable courage for the Government there to be seen again toeing the sterling line. Hongkong is also acutely conscious of the consequences for sterling if it is the first to pull the rug from under it. When the Commonwealth Finance Ministers met in Dar es Salaam before pro- ceeding to Nairobi for the IMF and World Bank meetings, the Hongkong Finance Mini- ster Mr Haddon-Cave pointedly left_early and did not come to Nairobi. Mr Barber told me that as far as he knew the only objection expressed in Dar to the new guarantee arrangement was the Treasury's

AS THE annual meetings of the International Monetary Fund and World Bank end, the delegates disperse and the talking stops, the shape of things to come in the sphere of international monetary reform becomes clearer. The Finance Ministers in the Com- mittee of Twenty have given themselves a July 31 deadline to agree the answers but more significant are the rehabilitation of the United States dollar and the entente cordiale between M. Giscard d'Estaing of France and Mr George Shultz of America.

Mr Shultz's expansiveness may have a deal to do with the improving status of the dollar while Giscard may be adopting a more in- ternational, less chauvinistic posture appro- priate to a future prime minister or even president.

The French and American positions on the key issues of adjusting balance of payments surpluses and convertibility have come much closer. In the light of this gratifying de- velopment it is possible to look at some of the important detail in the first Outline of Reform prepared by the Committee of Twenty and make some guesses at the de- cisions that will finally be taken.

First exchange rates. "Stable and adjust-

par values have been decreed with ing rates "recognised as providing a

sterling

useful technique in particular situations." This is likely to mean that on Day One of the new monetary system each country will be free to choose either a fixed parity or a floating rate.

Second, convertibility. There will be two important stages along the road.

a series of bilateral negotiations the United States will fund a significant part of its standing dollar debts in the form of Roos bonds or something akin. To ease the prob- lem of the Middle East oil producing enormous dollar surpluses the World Bank will set up a special agency ja the Middle East through which they may be channelled into appropriate investments.

countries'

Boost to confidence

Three, gold. The official dollar prices of gold will be abandoned and monetary authorities, including the International Monetary Fund, will be free to deal in gold with each other and to sell and buy gold in the market. This would lead to an upvalua- tion of gold held in countries' reserves because their valuation would relate to the (higher) free market price.

Treating gold in this way would prevent loss of international liquidity which might otherwise result from running down the reserve role of the United States dollar (and sterling). It would also help confidence, the lack of which really destroyed the old Bretton Woods monetary order, during the inevitably slow transition to the new monetary system.

70