TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 226

HK may agree

Standard

Sunday to guarantee

Sept8

1973 by Britain

1

$

H ON G K ONG Financial Secretary Philip Haddon-Cave said yesterday there was a possibility that the Government might agree to the new sterling guarantee proposals put forward by the British Treasury.

Mr Iaddon-Cave, who was speaking at Kaitak Airport on his arrival from London, however, could not Say whether the new arrangement would be to the advantage of Hongkong.

He said a message about the new arrangement was given to him in Bahrein a few hours from

after his departure

London.

{

The new guarantee was given as US$2.4213 a pound sterling, the average of the exchange rates at noon on the last three days. The guarantee will be implemented if the

of daily average

rates for sterling in terms of US dollars throughout the six-month period is below the guarantee rate.

sum

Settlement would be in sterling and the amount would be calculated as the necessary to restore the value of cligible balances calculated at the average rate to their value at the guarantees rate.

But market sources reacted with little enthusiasm to the proposed transitional arrangements for sterling reserves. The announcement also had no effect on the money market here.

DIFFERENCE

One financial source said: "Hongkong's basic problems in holding its overwhelming percentage of reserves in a weak currency like sterling remains unchanged."

a

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by

John Chuan

in the new guarantee worthless, because the US dollar itself has meanwhile been devalued by 10 per cent,' he added.

**

Commenting on reports that most of Hongkong's demands had been met by London, Mr Haddon-Cave said: "It's not for anyone in Britain to claim that our demands have been met. It's for the Hongkong Government to decide if the proposed terms of agreement are satisfactory tó us.'

"And by satisfactory, I mean that our foreign exchange risk should be covered by the guaranteed arrangement," he added.

While declining to express a firm opinion on whether Hongkong could invest its future surplus in currencies other than sterling, the. financial secretary said: "There are several points to be clarified and several points to be spelt out in more detail before we can take a firm view." get

Another expert said: "It is great pity that Mr Haddon-Cave could not better terms for our reserves.

33

"The difference of two cents, from US$2.40 to $2.42

The first criticism became when Mr apparent Haddon-Cave was in London recently to discuss the future of Hongkong's reserves deposited there.

He sought a guarantee of repayment or maintenance of the balance at the rate of exchange on the day of deposit.

The second criticism was that under the Basle Agreement the payment was once-only. Under the arrangements announced yesterday the guarantee is for the whole six-month period.

PRIORITY

When asked what avenues were open to Hongkong if the arrangements were not ¡ acceptable, Mr Haddon-Cave replied: "All I can say is that you can rest assured that the management and security of Our external reserves is a subject which has our highest - priority.

"I consider that We can only accept a further guarantee agreement if our obligations are more limited than they are now under the present sterling guarantee agreement and our rights are more worthwhile."

The existing guarantee agreement was negotiated "fairly" in 1968. It has proped to be inadequate because circumstances had since changed.

Yesterday's guarantee ly Britain meets two of the criticisms over the old agreement which aro sc after the pound was allowed to float last June.

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