TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 119

CONFIDENTIAL

gettlement that has been described (and which for convenience we set out again in MIFT) was not designed to differ more than marginally from the basis that would apply if the declaration had been 100 per cent fulfilled throughout. Moreover, this modified settlement basis was certainly not designed to leave you with increased uncovered balances; it was designed, in the mitigating circumstances of your case, to compensate on the basis of your holdings after the purchases in respect of the end-February short-fall had been made. This modified settlement basis was

described in our telegram no.309 of 26 March. In response to the question in your telegram no.375 "whether it would be worth your while buying sterling before Friday" we made it clear in our telegram no. 314 of 27 March that we would not be prepared to compensate on any extra amount of sterling acquired as a result of topping-up over and above that undertaken in March to reestablish the end February position under your interpretation of the accidental breach provision.

6. In the circumstances, we think this modified settlement basis is a fair compromise, and hope you will accept it as such.

7. For the period of the new declaration as we said in our telegram no. 309 we are not prepared to accept any other interpretation of the accidental breach provision than the one there described. We would hope that, should you decide to participate, you would be able to maintain a sufficient margin over your new reduced MSH to cover any possible further fall in gilt-edged prices.