CONFIDENTIAL
STERLING
1.
Hong Kong has participated in the sterling guarantee
arrangements since 1968. Originally both the Hong Kong Government's
own sterling reserves and those of the Hong Kong commercial banks
were guaranteed. But when the original guarantee was extended for
six months in September 1973, the Hong Kong commercial banks had
reduced their sterling holdings to a very low level and ceased
to be covered by the guarantee arrangements. At that time Hong Kong
opinion was critical of HMG for the losses allegedly incurred to
their reserves through the effective devaluation of sterling. But
after some hesitation the Hong Kong Government agreed to the renewal
terms.
2.
There have been further disagreements with Hong Kong on
technical points, most recently on whether Hong Kong have maintained
the agreed minimum proportion of sterling (MSP) in their reserves.
3.
We have now been told that the Executive Council have
accepted the Hong Kong Government's recommendations on the renewal
terms. What these recommendations are is not altogether clear. It
appears that the Hong Kong Government will accept HMG's offer but
are committed to trying to persuade the Treasury to accept Hong Kong's
interpretation of the Agreements. Mr Roberts may not be aware of
these developments, but if he raises the question the Minister could
say that this is a matter for the Treasury.
CONFIDENTIAL
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