TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 150

4. 1 MART TO ASSURE YOU THAT THIS MEASURE WILL HOT PREVENT AND IS.

EXPECTED TO DISCOURACE UK COMPANIES FROM UNDERTAKING NEY INVESTMENTS, BUT WILL AFTECT ONLY THE HETHOD 1 HICH THEY FINANCE SUCH RIVESTMENTS. IN PARTICULAR IT WILL ENCOURAGE THEM TO FINANCE

WITH FOREIGN BORROWING. I AM VERY HUCH AWARE OF THE IMPORTANCE OF

UK PRIVATE LIVESTMENT FOR MANY OVERSEAS STERLING AREA COUNTRIES,

HOWEVER EXPERIENCE I OPERATING IDENTICAL RULES OVER A NUMBER OF

YEARS IN COUNTRIES CUTSIDE THE STERLING AREA HAS SHOWN THAT THEY DO NOT PREVENT DIRECT INVESTMENT CONTINUING AT HIGH AND INDEED

INCREASING LEVELS, I SHOULD NOT EXPECT THE LEVEL OF UK INVESTMENT

IN OVERSEAS STERLING AREA COUNTRIES TO SUFFER FROM THE INTRODUCTION

OF THESE NEW RULES.

f

R

5. 1 SHALL BE ANNOUNCING PARALLEL MEASURES AS REGARDS THE

FINANCING OF UK INVESTMENT IN EEC MEMBER STATES, SIMILAR MEASURES

HAVE BEEN IN FORCE FOR SOME YEARS FOR UK INVESTMENT IN OTHER

NON-STERLING AREA COUNTRIES AND THESE REMAIN UNALTERED,

6. SECOND, I SHALL EXTEND TO SECURITIES PAYABLE IN OVERSEAS

STERLING AREA CURRENCIES THE SO-CALLED 256 REQUIREMENT. THIS IS THE RULE UNDER WHICH 25% OF THE PROCEEDS OF SALE OR REDEMTPION OF

FOREIGN CURRENCY SECURITIES WHEN OWNED BY UK RESIDENTS HUST BE

SOLD 14 THE OFFICIAL FOREIGN EXCHANGE MARKET, WITH ONLY THE REMATHING 75% BEINAG AVAILABLE FOR REINVESTMENT OVERSEAS.

8 ~ I WANTED YOU TO BE FULLY AWARE OF THE REASONS FOR THESE CHANGES,

•

CALLAGHAN

NO DISTRIBUTION

HEAD FRD

MR MARSHALL

-2-

COPIES TO

PS/CHANCELLOR OF EXCHEQUER

MR D J MITCHELL, TREASURY

MR T U BURGNER, TREASURY

MR E B BENNETT, BANK OF ENGLAND

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