TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 78

reconsideration in order to be able to satisfy ExCo that every thing possible is being done.

5. The actual proposal is basically the same as the earlier one which we rejected. Hong Kong would make up by purchases in the following month any shortfall below MSP revealed in one month's figures. One new feature is an offer to maintain a margin of £2 million or £3 million.

6. In itself this is not an unreasonable proposal. If we were in a negotiating situation for a new sterling agreement, or if we were particularly anxious to keep Hong Kong within the guarantee arrangements, we might accept. However one of the great attractions of the unilateral declaration procedure has been that we are able to stand firm on the general line that we cannot make exceptions for individual participants. There is no need for us to make this concession and to do so would weaken our general position. Moreover, given the history of our relations with Hong Kong over the sterling guarantee, this latest proposal should be regarded not so much as a genuine attempt to reach agreement as the latest of a long series of attempts to extract small concessions.

7.

What

I suggest that was is needed is a firm but polite reply, couched in terms which the Hong Kong Government can if necessary quote to ExCo, saying that we have considered the request but for various reasons which we will set out, we are not able to modify the declaration.

8. As regards the other point, whether Hong Kong should participate in the new arrangements, it seems to me from the telegrams and particularly from the memorandum for ExCo, that Hong Kong takes a rather different view of the situation than we do. Or rather Hong Kong still adheres to the view which may have been valid a few months ago but is not valid now. Behind Hong Kong's attitude seems to lie an assumption that HMG is very anxious to keep Hong Kong's reserves in sterling and will pay the high price to do so. In fact the guaranteed sterling re serves of Hong Kong represent the most expensive form of overseas borrowing available to the UK (although now that the numeraire is the

Our experience affective rate the cost of the guarantee may be smaller).

a

with the guarantee has been a constant source of trouble, and I suggest that HMG would be more relieved than sorry if the Hong Kong Government

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