TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 85

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bank holdings. The combined amount of these holdings at the end of June, 1973 was £660 million, of which the commercial bank element was £355 million. Because of the heavy cost of thoj Hong Kong dollar guarantee (total implementation payments by the Hong Kong government in sterling were £19 million) and without any assurance of a further UK guarantee the Hong Kong government were unwilling to announce in advance that this local guarantee would be renewed after its expiry on 24 September. In this situation, the commercial banks became increasingly restive during the BUHOZ. months about their sterling holdings and the Financial. “Secretary

banks of Hong Kong warned us that the commercial/ were undertaking forward sterling sales (to mature after 24 September) that it was not practicable for the authorities to prevent. Although oven,

it the Hong Kong authorities do not appear to have firm figwen, is now clear that forward sales in July, August and September were on a substantial scale. Simultaneously, the banks' ste-ling holdings were being run down to finance a very rapid expungieu of local currency advances and to satisfy the demand for steil g

of the Bank of China. As a result of all these factors, commercinl bank sterling holdings fell from £355 million at the end of Juve te no more than £60 million at the end of September; and they nro probably now down to £20 million.

9. It is unfortunate that the sterling rate had to bear the strain of the forward sales by the banks, but it is herd to sec in practical terms how it could have been prevented.

This is PET

behind us.

It is now necessary to determine how the unilateral offer might be modified to take account of the virtual elimination of sterling holdings by the Hong Kong banks.

10.

Given the depletion of the commercial banks' sterling, the Hong Kong authorities suggest that any residual commercial ban' holdings be ignored and that the unilateral guarantee offer be

This is plainly applied only to Government sterling holdings. realistic. But while the sterling proportion in official recomien on 24 September was very broadly consistent (but on precise figuren see below) with satisfaction of the MSP requirement of 89 per cont

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