TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 73

!

DRAFT TELEOBAM TO HONG KONG

STERLING GUARANTEES

Thank you for the raport ia your tolno 467 of the recent

discussion in the Executive Council.

Recent exchanges between un kave, of course, focussed on what may be termed the outer limits to interpretation of the accidental breach provicion. But this focus on the brenches which the provision does not accommodate has tended to Cistrect attention from the breaches which if

does socomzodnie.

We would regard as accidental any bronch which could not have been ranaonably forensen or prudently provided against. In particular, the provision would accommodate a breach that arose as a result of a substantial fall in gilt prices in the inst days of the month. Kozcover, the provice in para.3(2)

of the Declaration does not exclude the possibility that two succogaive monthe might show bronches that were

acoidental in the sense decoribed above.

All this being co, end after further reconsideration of the liong Kong onse, we do find it hard to see what unmat need renaine for any rafomulation of this provision canalatently with precerving it explicitly to cope with occidental, repent accidental, branchso. Va just cannot see as unsympathetic or legalistic a reluctance on the part of FG to go beyond a diepensation which providea e lat-out in respect of any accidental brench. There is no question of lack of goodwill