TNAG-0457-FCO40-522-Future-of-financial-and-economic-policy-of-Hong-Kong-1974 — Page 36

CONFIDENTIAL

HONG KONG'S MONETARY PROBLEMS

Record of a Meeting held on 10 December 1973 at the Treasury

Treasury

Present:

Mr FR Barratt

Mr D G Holland

Mr SW Fayton Mr JPL Gwynn

FCO

Bank of England Treasury

Mr Barratt held a meeting in his room at the Treasury at 4pm on 10 December to discuss Hong Kong's monetary problems.

These stem from Hong Kong's general situation, in which a traditional colonial Government is confronted by the complex problems of the modern world while trying to manage the economy according to laissez faire principles. Any departure from those principles is resented by the local business community and opposed by their representatives on the Executive Council as interfering with their freedom of activity.

Relying on the flexibility of the labour market, which may not continue for long, the Hong Kong authorities seem too complacent.

The Colony's prosperity is inherently unstable, and a recession with very unpleasant consequences could be triggered off by a banking crisis or other sudden event that led to a major outflow of funds.

The weakness in the Government's position is due to its limited control over the economy in general and monetary matters in particular: even some essential statistics are lacking. It is also desirable for the Financial Secretary, whose relationship with the banks is a key factor in the administrative set up and who bears at present a very heavy workload, to relieve himself of some of the strain by delegating more effectively.

HMG find it difficult to interfere in Hong Kong's affairs because of the tradition of letting the Colony look after itself, particularly

in financial and economic matters. But if things went wrong HMG would

CONFIDENTIAL