TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 5

PRIORITY

.SECRET

214

CYPHER/CAT A

GRPS 980

FM HONG KONG 170355Z

SECRET ZORWELL/

207

213) (218

TO PRIORITY F C O TELNO 1317 OF 17TH NOVEMBER, 1973.

207

YOUR TELEGRAM NUMBER 1133:

STERLING GUARANTEES.

AV No. 52

19 NOV 1973

HKK 5/1

see

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reply or

I SHALL SEEK EXECUTIVE COUNCIL'S ADVICE AS TO WHETHER HONG KONG SHOULD PARTICIPATE IN THE UNILATERAL OFFER ON THE BASIS OUTLINED IN PARAGRAPH 3 OF YOUR TELEGRAM OF 27TH NOVEMBER, BUT THERE ARE TWO POINTS WHICH WILL NEED TO BE SETTLED BEFORE

WE CAN AGREE IN DETAIL AND PREPARE ADVICES FOR DESPATCH TO THE

BANK OF ENGLAND.

2.

ar

218

26.XT

FIRST: UNDER THE TERMS OF THE STERLING AVREEMENT, SECURITIES

WERE REQUIRED TO BE VALUED IN ACCORDANCE WITH THE NORMAL CONVENTIONS

OF THE HOLDERS, WHEREAS THE DECLARATION OF 11TH SEPTEMBER STIPULATES

VALUATION IN ACCORDANCE WITH THE STATUTORY PROVISIONS OF EACH

OF THE FUNDS AND, IF THERE ARE NO SUCH PROVISIONS, ON A CURRENT MARKET VALUE BASIS. DURING THE PERIOD OF THE STERLING GUARANTEE AGREEMENT, THIS GOVERNMENT'S SECURITIES WERE VALUED IN ACCORDANCE WITH THE ACCOUNTING CONVENTIONS OF THE VARIOUS FUNDS (E.G. THE

EXCHANGE FUND USED BOOK VALUES BASED ON ANNUAL REVALUATIONS

AS AT THE 31ST DECEMBER EACH YEAR). HOWEVER, THESE CONVENTIONS HAVE NO STATUTORY BACKING, INVESTMENTS BEING VALUED IN ACCORDANCE WITH CR 230.

3. THE GOVERNMENT'S EXTERNAL HOLDINGS AT CURRENT MARKET VALUES

ON 26TH SEPTEMBER (1.E. AFTER ALLOWING FOR COMPENSATION TO THE

BANKS UNDER THE EXCHANGE FUND GUARANTEE SCHEME) WERE POUNDS 313 MILLION (0.S.R.), POUNDS 84 MILLION (OTHER FOREIGN CURRENCIES), MAKING A TOTAL OF POUNDS 397 MILLION (T.0.E.R). THESE FIGURES WERE SET OUT IN THE STATEMENT GIVEN TO PAYTON WHEN HE WAS HERE, THE STATEMENT WHICH ALSO INCLUDED THE FIGURES YOU HAVE QUOTED IN

PARAGRAPH 3 OF YOUR TELEGRAM. CONSEQUENTILY, FOR HONG KONG TO BE ABLE TO PARTICIPATE, THE MINIMUM STERLING PROPORTION FOR

REFERENCE IN PARAGRAPH 3 OF THE DECLARATION WOULD HAVE TO BE REDUCED TO 78 PER CENT (78.85 PER CENT).

/4. SECONDLY,

SECRET