TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 210

(AND MAY WELL NOW BE LOWER).

3. YOUR PARAGRAPH 1 (11): AT BOCK VALUES THE GOVERNMENT'S STER ASSETS ON 24 SEPTEMBER AMOUNTED TO POUNDS STERLING 366 MILLION, BUT WERE REDUCED TO POUNDS STERLING 347 MILLION ON 26 SEPTEMBER AFTER MAKING COMPENSATION PAYMENTS OF POUNDS STERLING 19 MILLION IN STERLING TO TWO BANKS UNDER THE EXCHANGE FUND GUARANTEE SCHEME. (ALL OTHER PARTICIPATING BANKS ACCEPTED PAYMENT IN HONG KONG DOLLARS). AT CURRENT MARKET VALUES THE GOVERNMENT'S STERLING ASSETS, AFTER DEDUCTION OF THESE COMPENSATION PAYMENTS, WOULD BE ROUGHLY POUNDS STERLING 320 MILLION. THE GOVERNMENT'S NON-STERLING FOREIGN ASSETS ON 24 SEPTEMBER, AT MID-MARKET PRICES ON THAT DAY,

AMOUNTED TO POUNDS STERLING 82 MILLION.

4. AS IT IS NOT OUR INTENTION TO INCLUDE THE BANKS IN ANY FURTHER CUARANTEE ARRANGEMENT, OUR M.S.P. AFTER 24 SEPTEMBER IS ONLY

80,9 PER CENT, EVEN USING BOOK VALUES (1.E. OSR OF POUNDS STERLING 347 AS A PERCENTAGE OF TOER OF POUNDS STERLING 429, MADE

UP OF POUNDS STERLING 347 MILLION OF STERLING AND POUNDS STERLING 82 MILLION OF NON-STERLING ASSETS). IT FOLLOWS, AS I POINTED OUT IN PARAGRAPH 7 OF MY TELEGRAM 1117, THAT THE RESTORATION OF OUR

M.S.P. TO 89 PER CENT, WOULD INVOLVE THE PURCHASE OF POUNDS STERLING

317 MILLION AGAINST HONG KONG DOLLARS OR THE SALE OF POUNDS STERLING

34 MILLION OF NON-STERLING ASSETS FOR STERLING. IT IS BECAUSE NEITHER COURSE IS FEASIBLE, THAT WE HAVE SUGGESTED PARTICIPATING IN THE

FURTHER GUARANTEE ON THE BASIS SUGGESTED IN PARAGRAPH 10 OF MY

TELEGRAM 1117.

5. YOUR PARAGRAPH 2: WE WOULD TRY TO GET AWAY WITH A GENERAL STATEMENT TO THE EFFECT THAT A SATISFACTORY UNDERSTANDING HAS BEEN CONCLUDED WITH H.M.G. WHEREBY THE FORM OF OUR PARTICIPATION TAKES ACCOUNT OF OUR SPECIAL CIRCUMSTANCES. WE THINK WE MIGHT SUCCEED IN HOLDING THIS LINE WITH THE LOCAL PRESS, PARTICULARLY IF YOU WOULD AGREE TO OUR GIVING ONE OR TWO SELECTED EDITORS A BACKGROUND BRIEFING IN STRICT CONFIDENCE.

6. HOWEVER WE CANNOT GUARANTEE THAT WE WOULD GET AWAY WITH THIS, AND WE MIGHT BE PRESSED VERY HARD, PARTICULARLY BY THE INTERNATIONAL PRESS, TO SAY WHETHER WE ARE MEETING THE CONDITIONS OF THE UNILATERAL OFFER AND, IF NOT, IN WHAT WAY THE CONDITIONS HAVE BEEN MODIFIED. IF SO, WE WOULD HAVE TO GIVE SOME INDICATION THAT THE M.S.P. PROVISION HAD BEEN RELAXED. I REALISE THIS MAY CAUSE YOU SOME DIFFICULTY, BUT THE FACT IS THAT WE HAVE A LARGE AMOUNT OF STERLING, A HIGH M.S.P. AND ON STERLING LIABILITIES AND WE SUGGEST IT WOULD BE REASONABLE TO INSIST VIS-A-VIS OTHER HOLDERS

THAT HONG KONG'S POSITION WAS UNIQUE. MACLEHOSE

UNIQUE = /B.

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