TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 94

(b)

(c)

SECRET

5 -

XCS(74)1

the minimum holding of official sterling required to be maintained by Hong Kong, in terms of market value as before, is whichever is the lowest of:

(i)

70% (previously 78%) of total official external reserves, or

(ii)

(iii)

70% (previously 78%) of total official external reserves held on 24th September 1973 (defined as excluding sterling used subsequently to compen- sate banks in Hong Kong under the Exchange Fund Guarantee Scheme), or 70% of total official external reserves held on the last working day in London of March 1974;

/ In Hong Kong's case, at £270.3 million (iii), before taking account of the compensation still to be received, is lower than (ii), which is £272, 3 million. The minimum holding will, therefore, be the lower of (i) and (iii). As at 31st March 1974, (i) and (iii) are by definition identical at £270, 3 million: this is the amount Hong Kong would be required to hold if total reserves remained at, or rose above, their level at 31st March 1974, while some lower figure would operate, under (i), if total reserves fell. /

sterling holdings eligible for the guarantee are the lowest of the following:

(i)

(as before) total official sterling holdings, less 10% of total official external reserves, at 24th September 1973, or

(ii)

(iii)

(as before) total official sterling holdings, less 10% of total official external reserves, at 31st March 1974, or

total official sterling holdings at 31st December 1974, less 10% of total official external reserves at 31st March 1974 or

31st December 1974, whichever is the lower;

In Hong Kong's case, at £262.0 million (ii) is lower than (i), which is £266,1 million. The operative figure will thus be the lower of (ii) and (iii) and the effect is that if total official external reserves rise by the end of the year the deduction which has to be made from sterling holdings is nevertheless restricted to 10% of total official external reserves at 31st March 1974 while, if total official external reserves fall, the deduction from sterling holdings falls proportionately. /