TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 167

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THE USE OF SUCH WORDS AS

OCCASIONS" # **CHANGES** AND **ADVICES 2

IN PARAGRAPH 2 OF YOUR TELEGRAM 1289 OF 26 NOVEMBER 1973 SURELY JUSTIFIES OUR INTERPRETATION, NOR CAN IT BE OTHERWISE FOR, AS RECOGNISED IN THE SAME PARAGRAPH, AN ACCIDENTAL BREACH AT THE END OF ANY ONE MONTH CAN ONLY BE RECTIFIED AFTER THE EVENT AND THE

SAME MUST APPLY TO ANY SUBSEQUENT ACCIDENTAL BREACHES, THIS

WOULD JUSTIFY OUR TOPPING UP IN APRIL TO GET OUR END OF MARCH POSITION STRAIGHT, BUT, FOLLOWING HIS CONVERSATION WITH PAYTON,

! AGREED WITH BLYE THAT HE SHOULD TAKE STEPS TO TRY TO AVOID AN

ACCIDENTAL BREACH AT THE END OF THIS, THE LAST, MONTH OF THE PRESENT GUARANTEE, BY WATCHING THE F.T. INDEX AND TRYING TO GUESS

THE EFFECT ON THE VALUATION OF OUR HOLDINGS OF GILT EDGED SECURITIES. IN THIS CONNECTION, IT LOOKS AS IF WE WOULD NEED TO- BUY ABOUT £5 MN. AFTER ALLOWING FOR INTEREST ACCRUALS IN MARCH. ARE YOU NOW SUGGESTING IN PARAGRAPH 3 OF YOUR TELECRAM UNDER REFERENCE THAT THERE IS NO POINT IN OUR DOING THIS? AND ARE YOU

ALSO SUGGESTING THAT INTEREST ACCRUALS DURING MARCH WILL NOT BE

COUNTED AS PART OF OUR ELIGIBLE STERLING BALANCES?

3. OF COURSE, IF THE GILT EDGED MARKET WEAKENED ON FRIDAY 29TH MARCH, THE LAST WORKING DAY OF THE MONTH, WE WOULD STILL BE TECHNICALLY IN BREACH, BUT THERE IS NO WAY WE COULD AVOID THIS

EXCEPT BY MORE THAN TOPPING UP. BUT IT IS ANYONE'S GUESS BY HOW MUCH WE SHOULD MORE THAN TOP UP AND OUR OBLIGATION TO TOP UP

AT ALL, SIMPLY BECAUSE WE ARE HEAVILY INVESTED IN THE LONG END OF THE GILT EDGED MARKET, WAS GREATLY CRITICISED IN EXECUTIVE COUNCIL (SEE PARAGRAPH 1 OF OUR TELEGRAM 1433 OF 11 DECEMBER 1973). AS IT IS, UNOFFICIALS ARE GOING TO BE DISTINCTLY TAKEN

ABACK TO LEARN THAT WE HAVE ALREADY HAD TO BUY SOME £16MN FOR

TOPPING UP PURPOSES BUT THAT, OF COURSE, IS OUR WORRY, NOT YOURS.

INCIDENTALLY, IF YOU DECIDE TO COMPENSATE US ON OUR ACTUAL

HOLDINGS AT THE CLOSE OF BUSINESS ON 29TH MARCH IF BELOW £313MN..

SO BE IT, BUT I REALLY DO NOT SEE HOW YOU CAN POSSIBLY CLAIM

THAT TO COMPENSATE US AT ALL IS A CONCESSION''.

(238) HKK

1973

4. AS WE MUST KNOW WHETHER IT IS WORTH OUR WHILE BUYING STERLING BEFORE FRIDAY TO TRY TO GET OUR POSITION STRAIGHT AS AT THE END OF THE LAST WORKING DAY OF THIS THE LAST MONTH OF THE PRESENT GUARANTEE (WITHOUT PREJUDICE TO OUR INTERPRETATION OF THE TOPPING UP PROCESS), I SHOULD BE MOST GRATEFUL FOR A REPLY TO THIS TELEGRAM BY FIRST THING ON THURSDAY HONG KONG TIME.

MACLEHOSE