TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 185

CONFIDENTIAL

7. SECOND, IN RESPONSE TO REQUESTS FROM MANY HOLDERS, THE NEW DECLARATION WILL PROVIDE FOR A GENERAL REDUCTION OF 10%

IN THE MINIMUM STERLING PROPORTIONS REQUIRED FOR ELIGIBILITY UNDER THE GUARANTEE ON THE SAME LINES AS THE REDUCTIONS MADE IN 1971. THIS WILL ENABLE HOLDERS WHO WISH TO DO 30 TO UNDERTAKE FURTHER DIVERSIFICATION WITHOUT LOSING THE BENEFIT OF THE GUARANTEE. I AM SURE THAT HOLDERS WILL RECOGNISE THAT IT ILL BE IN OUR COMMON INTEREST FOR ANY SUCH DIVERSIFICATION TO DE PHASED AS EVENLY AS POSSIBLE OVER THE GUARANTEE PERIOD SO AS TO AVOID ANY DISRUPTIVE

EFFECTIVE IN THE

EFFECT IN THE EXCHANGE MARKETS.

S. THIRD, THE NEW GUARANTEE INVOLVES A MODIFICATION OF THE BASIS FOR DETERMINING ELIGIBLE BALANCES WHICH WILL BE RELEVANT FOR HOLDERS WITH RISING RESERVES, IN COMPUTING BALANCES ELIGIBLE FOR GUARANTEE, THE PROVISION FOR DEDUCTION OF AN AMOUNT EQUIVALENT TO 10 PER CENT OF TOTAL OFFICIAL EXTERNAL RESERVES WILL BE MAINTAINED, BUT AN UPPER LIMIT WILL BE SET TO ENSURE THAT THIS PROVISION DOES NOT LEAD TO A DEDUCTION IN EXCESS OF THE DEDUCTION APPLIED AT THE TIME OF IMPLEMENTATION OF THE PRESENT GUARANTEE.

9. IT WOULD, I THINK, BE IN OUR COMMON INTEREST TO MAKE KNOWN PUBLICLY AS SOON AS POSSIBLE THAT THE GUARANTEE WILL CONTINUE FOR A FURTHER PERIOD, AND I THEREFORE PLAN TO MAKE AN ANNOUNCEMENT WITHIN A DAY OR SO. THE FULL TEXTS OF THE INDIVIDUAL DECLARATIONS WILL BE DESPATCHED AS SOON AS POSSIBLE.

10. MUCH LOOK FORWARD TO HEETING YOU LATER THIS YEAR.

CALLAGHAN

ORWELL DISTRIBUTION

FRD

NENAD

SWPD

WED

SAD

EID

EAD

HKIOD

CSAD

WIAD

WAD

PDTD

CARIBBEAN D

GIB & GEN D

MED

NAM D

3

CONFIDENTIAL