TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 175

Dear Walker,

CONFIDENTIAL

RECEIVED IN REGISTRY No.47

21 MAR 1974

воде

27

20th March 1974

MF 9/393/1

Hong Kong

Sterling Guarantee:

I enclose a copy of the reply we have received to the telex message which St.Clair nokod us in his lotter of 13th March to send to Hong Kong. From what ye says there would appear to be a genuine misunderstanding as to what we expect them to do after they have fallen below MBII in any one month. The key clause occurs in paragraph 2 of telegram 1209 to llong Kong whore it was said that an accidental failure to meet the MSII as a result of changes in market prices of securitios would not be an abrogation, "provided that those conditions [HSHI] are natiofied on the date on ulich advices are next duo after the advice

The intention was of course date on which the failure occurred". that the next advico ni ter uuch a failure should show that they were within MSII on that sublujuunt date. Hong Kong appear to have interpreted this clauso to monn that they must buy enough sterling before the next advico date to make good the broach as at the previous advice date. In a situation of constantly falling stock prices this could mean that thore would be recurrent breaches as in fact appears to be happening. The clanso in telegram 1209 does seem to be capable of this interpretation. lolther would this be inconsistent with the confirmation supplied by Hong Kong in their telegram 1433 to our request (telegram 1225, paragraph 4) for an assurance that they would,

I think therefore that if necessary, buy sterling for MSH purposes. because of these doubts we must condono the two breaches in December and January and probably a third in February also.

It is important now to make clear to Blye what we expect Hong Kong to do by 29th March; this is to acquire sufficient sterling to onsuro that in spite of any possible fall in the gilt market or unexpected payments out of Crown Agents funds they will have sufficient sterling to cover MSI on that date. This moans acquiring sufficient sterling to provide for unforeseen contingencies (and maintaining such a murgin during the course of the new declaration).

In view of the shortness of time for taking action I would like to speak to Blye on the telephone on Thursday morning and follow like up with a telex confirmation. I should be glad to know whether you

agree,

I am sending a copy of this letter to John Cambridge.

Yours sincerely,

D.A.Walker, Esq. [Treasury Chambers, Parliament Street, London SW1P 3AG.

(sd.) STANLEY PAYTON