TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 203

CUND

OF THE

ANCELLOR

EXCHEQUER

1

Election since this would leave it too near the expiry

date; speculation about the possibility of there being

no guarantee will grow and could be damaging to

sterling.

4. I would much like to get rid of guarantees

altogether; they are a very expensive way of borrowing.

But faced as we are with an exceptionally difficult year,

I do not believe that this is the time to do so. With

all the present uncertainties, and bearing in mind the

difficulties which most sterling holders would in any

case have about committing themselves far ahead, I think

that the right course now is to extend the guarantee for

a further period of 9 months until the end of the year.

5. The extension can be done, as before, by a

unilateral declaration by IMG. No negotiations will be

involved. The structure of the new guarantee will be

similar to the present arrangement, but I have in mind

one or two modifications which should reduce the potential

cost of the arrangements.

6. Thus I propose to provide for a reduction in the

amount of sterling that participants need to hold in

order to qualify for the new guarantee. This will be

attractive to most holders, and should reduce the amounts

on which we have to make guarantee payments.

}

CONFIDENTIAL

17. In addition,