TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 13

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HONG KONG:

STERLING ARRANGEMENT

1. Mr Walker of the Treasury telephoned this morning to say that his Submission recommending that we do not argue with Hong Kong about the "topping up" sterling, had been approved by Mr Barratt subject two points.

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2. Mr Barratt's first point was to express some concern that the Bank might get it wrong again.

Mr Walker was satisfied he could take Ɛare of this point because the Treasury will in fact draft the message for the Bank to send to Hong Kong defining our calculation of the 10 percent deduction.

3. Mr Barratt's second point was that he thought we should perhaps let Hong Kong know that we were going to be nice to them about the "topping up" sterling as well as correcting them about the 10 percent deduction. Mr Walker and I agreed and subsequently Mr Crowson of Hong Kong Department confirmed this agreement that it would be unwise to mention the "topping up" point to Hong Kong. Hong Kong were conpletely unaware that we had any doubts about their 'topping up" purchases. Nothing in our past history suggests that they are grateful when we give way on a disputed point and there would be still less hope of gratitude when we tell them we had been generous over a point which they never even considered in dispute. Mr Walker also feared that to imply by putting them side by side that the arguments of the 'topping up" and the 10 percent were somehow in the same category would be most unwise. On the "topping up" we have genuine doubts; on the 10 percent deduction the Treasury are absolutely convinced of the strength of their position. A further point in my mind and I gather also in Mr Walker's was that if we started drafting any explanation to Hong Kong why we might have questioned the "topping up" point, others in the Treasury on looking at it might think that perhaps we really should do so. It was therefore perhaps better left alone.

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Mr Walker promised that the most careful supervision would be given to anything the Bank sent out and also that the Bank would be instructed to inform us as soon as any reply was received from Hong Kong whatever it was. In this way we hope to avoid the usual story of delays by the Bank and we should be instantly alerted if there are signs of arguments brewing up on the Hong Kong side; can then reconsider both our attitude to the question and channels on which it should be discussed.

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Mr Crowson (Hong Kong & Indian Ocean Dept)

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