TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 88

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1973.

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FM HONG KONG 270220Z

CONFIDENTIAL [ORWELL]

CONFIDENTIAL

RESC

RECIP

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c. 51

2 MAY 1974

HKR5/10

TO PRIORITY FCO TELNO 467 OF 27 APRIL

STERLING GUARANTEE.

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EXECUTIVE COUNCIL DISCUSSED MEMORANDUM XCS(74)1(DESPATCHED TO LONDON ON 23 APRIL IN BAG NUMBER A46).

2. UNOFFICIAL MEMBERS WERE CRITICAL OF THE TREASURY ATTITUDE OVER ACCIDENTAL BREACHES UNDER THE OLD GUARANTEE. THEY BELIEVED THAT THE FORMULA GIVEN BY YOUR TELEGRAM NUMBER 1209 OF 26 NOVEMBER 1973, QUOTED IN PARAGRAPH 3 OF THE MEMORANDUM, ADMITTED OF THE INTERPRETATION WHICH WE FOLLOWED: AND THAT OUR ACTIONS STEMMING FROM THIS INTERPRETATION HAD POSITIVELY SUPPORTED STERLING. WE HAD

NOT WITHDRAWN ANY STERLING HELD AT THE BEGINNING OF THE GUARANTEE

PERIOD, AND ON THE CONTRARY HAD ACQUIRED POUNDS STERLING 40.7 MILLION (INCLUDING INTEREST AND OTHER EARNINGS, AS WELL AS OUTRIGHT FURCHASES) TO TOP UP. THEY PRESSED STRONGLY THAT THE MATTER SHOULD BE ARGUED FURTHER,

3. THEIR ASSESSMENT OF THE TREASURY'S ATTITUDE AS LEGALISTIC AND .

UNCOOPERATIVE COLOURED THEIR RESPONSE TO THE NEW DECLARATION.

THEY WERE CONCERNED THAT WE MIGHT AGAIN FIND OURSELVES BEING TOLD

THAT, ON SOME LEGALISTIC INTERPRETATION OF THE PROVISIONS, WE HAD

UNKOWINGLY BEEN IN BREACH. THERE WAS SOME DISPOSITION TO REJECT

THE GUARANTEE ALTOGETHER. FINALLY THEY ACCEPTED THE RECOMMENDATIONS

OF THE MEMORANDUM. THESE, HOWEVER, PROVIDE FOR FURTHER EFFORTS TO BE MADE FOR A REFORMULATION OF THE ACCIDENTAL BREACH PROVISIONS:

WE HOPE THAT YOU WILL CONSIDER THIS SYMPATHETICALLY PARTLY SO AS TO GIVE US A MORE PRACTICAL FRAMEWORK, BUT ALSO FOR THE SAKE OF COODWILL TAKING INTO CONSIDERATION THAT PROVISIONS MEETING OUR NEEDS WOULD NOT OPERATE TO THE DETRIMENT OF THE STERLING RATE.

CONFIDENTIAL

/WE FOR

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