TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 240

PRIORITY

CYPHER/CAT A

SECRET

L.

FM FCO 02183CZ

171

NCAT

SECRET

L

25

ORWELL

172)

нкк

(FRD)

3/€

TO PRIORITY SINGAPORE TELEGRAM NO. 575 OF 2 OCTOBER, 1973

HONG KONG TELEGRAM TO ME NO. 1117 (BEING REPEATED TO YOU

SEPARATELY): HONG KONG AND STERLING GUARANTEES

PLEASE PASS FOLLOWING TO .P $ MR ROYLE.

1. IF THE STERLING HOLDINGS OF THE HONG KONG BANKS ARE NO LONGER

COUNTED AS PART OF THE OFFICIAL RESERVES THEN, SINCE THESE WERE BY DEFINITION ALL STERLING, THE PROPORTION OF STERLING IN THE RESERVES AUTOMATICALLY DROPS. THIS IS THE GOVERNOR'S DILEMMA WHICH

HE EXPLAINED TO US IN LONDON. DURING THE DISCUSSIONS IN

DAR-ES-SALAAM THE TREASURY SUGGESTED TO HADDON-CAVE THAT ALTHOUGH

HONG KONG NEED NOT REACH THE 29 PERCENT N S P AT THE BEGINNING OF THE SIX MONTHS' EXTENSION, THEY SHOULD RETURN TO THIS LEVEL BY STAGES, IF NECESSARY BY BUYING STERLING. EXECUTIVE COUNCIL HAVE

NOW REJECTED THIS.

2. THE COVERNOR'S PROPOSITION IS THAT HONG KONG GOVERNMENT STERLING

HOLDINGS SHOULD QUALIFY FOR THE GUARANTEE IF THEY ARE MAINTAINED ·

AT THE SEPTEMBER 24 LEVEL. HE HAS THEREFORE ABANDONED HALF OF THE

PROPOSITION HE PUT TO US IN LONDON (1 E THAT THE MONG KONG

GOVERNMENT SHOULD BE ABLE TO SELL SOME STERLING BECAUSE THE

PROPORTION OF STERLING IN ITS OWN RESERVES WAS IMPRUDENTLY HIGH); BUT HE IS INSISTING ON THE OTHER HALF (IN EFFECT A TECHNICAL

REDUCTION IN M S P TO REFLECT A NEW SITUATION IN WHICH THE COMMERCIAL BANKS STERLING IS NO LONGER COUNTED AS PART OF OFFICIAL RESERVES).

3. WE ARE URGENTLY CONSIDERING THE GOVERNOR'S PROPOSITION WITH

THE TREASURY, THERE IS A CLEAR RISK OF A LEAK FROM EXECUTIVE COUNCIL, WHICH, IF IT TOOK THE FORM THAT HONG KONG HAD REJECTED HMG'S PROPOSALS, COULD BE DAMAGING, THIS IMPLIES A NEED OF SPEED

ON OUR SIDE AND DISCRETION ON HONG KONG'S.

SECRET

1460

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