TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 40

CONFIDENTIAL

in February from its September-based Minimum Sterling Holding

was £3,712,000. However, the £298,736,000 included in the Bank's

statement as eligible balances on 29 March 1974 under the

modified settlement basis comprises:

(a)

Holdings on 28 February valued

at end-March prices

£289.8m.

(b)

Sterling interest received

during March and maintained

in sterling

£4,721,023

(c) Increase in sterling cash assets

in March (see para below)

£196,005

(d) "Topping-up" purchases

£4,000,000

(Total of above £298,717,028)

5. Of the above (a) is clearly acceptable, (b) and (d) could arguably have been limited to a total of £3,712,000, the end- February deficency. However, allowance of £4,721,023, the amount of interest accruals, may be required by the terms of the modified settlement basis and can be justified on grounds that it represents

accumulation passive circulation of assets. We are prepared to allow the inclusion of (c) on similar grounds.

6.

Compensation payable on (d), the component which is disputed, would amount to just over £150,000.

7. The figure included in the Bank's statement appear to be based on advices sent by Hong Kong under cover of the Accountant General's letter of 6 May to the Chief of Economic Intelligence Department. There then followed the process of verification by the Bank, including, presumably the seeking of advices from London depositaries.

Hong Kong's acceptance of modified settlement baɛia.

8.

According to the Accountant General's letter, the advices were submitted without prejudice to the final outcome of the representatives

which have been made on the interpretation of the accidental breach

2.