STERLING
CONFIDENTIAL
Backround
1.
Hong Kong is one of the largest official holders of sterling.
In the summer of 1973, their total sterling was of the order of
£800 million, but since then the commercial banks have diversified.
Hong Kong's present holdings of sterling are about £350 million.
Details.
2. In common with other sterling holders, Hong Kong received at
the beginning of September HMG's offer to extend the guarantee
unilaterally for six months. In order to allow Hong Kong to
participate, given that the commercial banks had already diversified,
various modifications had to be agreed. The UK has gone a very long
way to meet Hong Kong's special interests and wishes.
3. There have been hard words in the Hong Kong press to the effect
that Hong Kong has been forced to hold a disproportionate amount of
sterling the implication being that Hong Kong was making
sacrifices for the benefit of the UK. This allegation, particularly
current at the end of the summer, is quite unfounded. Taking account
of the high interest payable on sterling holdings and guarantee
payments, Hong Kong has done better in sterling than if it had
converted into US dollars in 1968. As regards parity of treatment,
Hong Kong has been treated at least equally with other holders and,
on the basis of the very accommodating stand that we have taken, is
probably doing better than most under the present arrangement.
For
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CONFIDENTIAL
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