TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 121

CONFIDENTIAL

GRS 175

IMMEDIATE

CYPHER CAT/A

FM HONG KONG 080740Z

CONFIDENTIAL

ORWELL

Bay

are

a_reply

TO IMMEDIATE F C O TELEGRAM NUMBER 406 OF 8 APRIL, 1974

FOR BARRATT (TREASURY) FROM HADDON-CAVE.

MY TELEGRAM NO 396.

#

NEXT

NEW STERLING GUARANTEE.REF

(Si

PA

RECEIVED IN REGISTRY No. 11

11 APR 1974

UKK 5/10

MAR

draping

I AM ANXIOUS THAT WE SHOULD SETTLE OUR RESPONSE TO THE NEW

DECLARATION QUICKLY, ESPECIALLY AS I GO ON LEAVE ON 23 APRIL FOR SIX WEEKS. BUT WE ARE UNABLE TO TAKE A VIEW UNTIL THE DIFFICULTY OVER ACCIDENTAL BREACHES UNDER THE PREVIOUS GUARANTEE HAS BEEN RESOLVED, AS THE NEW DECLARATION CARRIES FORWARD ALMOST IDENT-

ICAL PROVISIONS.

2. WE COULD NOT UNDER THE NEW GUARANTEE CONTEMPLATE MAINTAINING

THE LARGE EXCESS HOLDING OF STERLING THAT YOUR INTERPRETATION

OF THE OLD GUARANTEE WOULD HAVE REQUIRED. OUR VIEW IS THAT OUR OBLIGATION UNDER THE GUARANTEE WOULD BE MET IF PARAGRAPH 3(2) OF THE NEW DECLARATION WAS REWORDED, OR INTERPRETED VIA A SIDE LETTER, ALONG THE FOLLOWING LINES ''..... FAILURE TO SATISFY ON ANY REPORTING DATE THE CONDITIONS SPECIFIED IN THIS PARAGRAPH, PROVIDED THAT ANY SHORTFALL IN THE STERLING HELD ON THAT REPORTING DATE IS MADE GOOD DURING THE FOLLOWING MONTH. THIS WOULD GIVE US A TECHNICALLY PRACTICABLE FORMULA. WE WOULD, OF COURSE, BE HAPPY TO HAVE ACCIDENTAL BREACHES DEFINED AS ONLY THOSE RESULTING FROM CHANGES IN MARKET PRICES OF GILT-EDGED STOCKS.-

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CONFIDENTIAL