TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 248

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DAILY TELEGRAPH Pound falls

cutting dated

29 SEP 1973

POUND FALLS ON HONGKONG

REPORTS

By Our Financial Correspondent The pound was marked down 11 cents below the overnight closing level yesterday following a report from The Daily Tele graph's City Editor in Nairobi that Hongkong was dissatisfied with Britain's guarantees on the million invest- colony's £900

ments in London.

When the London foreign ex

opened the change market pound was quoted at $2.401 compared with the overnight closing price of $2.4134 in New York. The Bank of England may have intervened and sterling slowly rallied.

By midday it had recovered to $2.4115 and reached $2-4140 at the close, a net loss of 35 points. City Report-P21

on fears of

selling by Hongkong

By CLIFFORD GERMAN FEARS that the Hongkong Gov- ernment would show its dissatis- fachon with the guarantees given by the British Government and start converting sterling into other currencies led to a sharp fall in the pound yesterday morn ing. Sterling is currently vul- nerable, and after closing over- night in New York at $2·4175, it was marked down 12 cents to $2-4025 in the first few minutes.

It is doubtful if there was any real trading at that level, bow- ever, and sterling recovered steadily in a thin market, pos- sibly with a little buying support from the Bank of England. For most of the morning the pound was traded between $2.4100 and $2.4130. After noon, on further consideration of the situation, some buying orders for sterling began to materialise and the pound reached $2-4170 before closing at $2-4140, a net loss of 35 points on the day.

Hongkong Finance Minister Mr Haddon-Cave said earlier this month that the extended guarantees given by the British Government on Sept. 6 were not really relevant to Hong- kong's position because alinost all the colony's reserves were still held in sterling and the conditions of the guarantee specified that this percentage should not be reduced. This gives Hongkong virtually no scope for diversifying into other harder currencies.

Guarantee terms

The terms of the extended guarantee unilaterally offered by Britain three weeks ago

do mean, however, that Hongkong is assured that its pounds will be worth on average not less than $2-4213 and the sterling holdings will be "topped up if the pound fails to maintain that average value between now and next March.

In such circumstances it would not pay Hongkong to start sell- ing sterling until it goes above the guarantee level.

At last night's price there is certainly nothing to be gained by offering sterling, and be- cause of the size of Hongkong's sterling holdings, believed to be about £900 million, it is clear that any substantial selling would quickly be self-defeating since it would quickly bring the pound below the guaranteed level again.

Only if the pound shows a guite substantial and unexpected reciation against the dollar is there much scope for switch- ing, at least until the guarantee expires or is reviewed once again,

HK,