TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 184

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3. BUT WHILE THE IMMEDIATE IMMENSE UNCERTAINTIES OF THE INTERNATIONAL ECONOMIC AND FINANCIAL SITUATION CREATE A NEED FOR STARLISING INFLUENCES WHERE THESE CAN APPROPRIATELY BE INTRODUCED, THE DIMENSION OF THESE UNCERTAINTIES IS NOW SUCH THAT I JUDGE THAT FE# COUNTRIES WILL WANT TO MAKE BINDING COMMITMENTS OR TO ASSUME OBLIGATIONS NOW ON THE DISPOSITION OF THEIR RESERVE HOLDINGS IN THE MEDIUM-TERM. I WOULD MYSELF SEE GREAT DIFFICULTIES FROM THE UK STANDPOINT IN ANY GUARANTEE ARRANGEMENTS FOR MORE THAN QUITE A SHORT PERIOD AHEAD. 4. I HAVE ACCORDINGLY DECIDED THAT IN WHAT IS ROUND TO BE A DIFFICULT PERIOD OF ADJUSTMENT IN THE INTERNATIONAL FINANCIAL SITUATION, SHOULD EXTEND FOR THE REMAINDER OF 1974 SOMETHING VERY LIKE THE EXISTING GUARANTEE ARRANGEMENTS, THOUGH THIS WILL BE UPDATED AND PODIFIED TO SUIT PRESENT CIRCUMSTANCES, AND TO REFLECT VIEWS THAT HAVE BEEN PUT FORWARD BY HOLDERS IN RECENT MONTHS. IN VIEW OF THE SHORT TIME AVAILABLE, THIS GUARANTEE WILL BE EMBODIED, LIKE THE PRESENT ARRANGEMENTS, IN A DECLARATION BY THE BRITISH GOVERNMENT. 5. THERE ARE SEVERAL IMPORTANT NEW FEATURES WHICH SHOULD BOTH MAKE THE GUARANTEE MORE ATTRACTIVE TO HOLDERS AND PUT IT ON A MORE

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6. FIRST, IN A SITUATION IN WHICH POST MAJOR CURRENCIES ARE FLOATING, A SINGLE CURRENCY DOES NOT PROVIDE THE MOST SATISFACTORY BASIS FOR A GUARANTEE, AND A NUMBER OF HOLDERS HAVE SUGGESTED THAT THE PRESENT DOLLAR GUARANTEE DE REPLACED BY ONE IN TERMS OF A BASKET OF CURRENCIES. I THINK THIS IS THE RIGHT APROACH, AND THE NEW DECLARATION WILL ACCORDINGLY PROVIDE A GUARANTEE IN TERMS OF THE EFFECTIVE RATE FOR STERLING. THIS RATE IS NOW THE BEST AVAILABLE INDICATOR OF THE VALUE OF STERLING IN TERMS OF THE MAJOR CURRENCIES AND IS THE YARDSTICK TO WHICH UK EXCHANGE RATE POLICY RELATES. THE GUARANTEE RATE OF THE NEW GUARANTEE WILL BE THE AVERAGE EFFECTIVE RATE IN THE SIX MONTHS OF THE PRESENT ARRANGEMENT: THE IMPLEMENTATION RATE WILL BE THE AVERAGE EFFECTIVE RATE IN THE NINE-MONTH PERIOD OF THE NEW GUARANTEE. THE METHOD OF CALCULATING THE RELEVANT RATES IS BASED ON STUDIES CONDUCTED BY THE IME AND ADAPTED BY THE UK TREASURY. THE METHOD WILL BE EXPLAINED IN A MEMORANDUM -ACCOMPANYING THE DECLARATION, AND A TECHNICAL ARTICLE ON THE SUBJECT WILL BE

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