TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 249

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THE GUARDIAN

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(4

cutting dated

29 SEP 1973

19

HK

Hongkong causes flurry on exchanges

An astonishing flurry over the fate of Hongkong's £900 millions sterling balances in London yesterday led to a sharp drop in the pound on foreign exchange markets-until dealers realised that there was no crisis and the pound crawled back.

The Treasury would not con- firm yesterday whether senior Hongkong and British officials had discussed the

colony's while the sterling balances Chanceller was in Africa, when it was reported that Hongkong had threatened to withdraw her sterling balances.

as a

It it known, nevertheless, that Hongkong is required colony to hold 89 per cent of her foreign reserves in sterling and would like to reduce this level and diversify into other currencies.

BY OUR FINANCIAL STAFF

A major reform would mean pegging the pound again, and Hongkong is unwilling to for six months to all sterling probably at a yet lower rate. gradually and under remain as heavily dependent holders prepared to keep their But such a change would take financial conditions. on sterling, or any single cur- funds up to the current rate. place rency, in the context of the But political pressure has been suitable international monetary situa- building up in Hongkong both No dramatic change, fear of tion.

for diversification and guaran- which apparently caused the But Britain has been unwill- tee, and the fear of unilateral minor crisis yesterday, is ever ing to see the level grow less, removal of funds by Hongkong, likely to take place. averting an earlier attempt by seems to have been generated dissatisfied Hongkong and other sterling by the likelihood that her

to

after businessmen diversify, holders devaluation, in 1968, by means with the present offer.

But it remains possible that of the Basle agreement, which

guarantee against Hongkong will in due course offered heavy sterling slides. The withdraw some of its sterling which Whitehall agreement expired this week, balances after reports of Britain's unwill- would probably stomach ingness to renew it. An exten- do without the sterling guaran- sion offered at the eleventh hour tee, in anticipation of a reform is described in Hongkong as a of the world monetary system

which the Chancellor holding operation.

It offers further guarantees promised.

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