TNAG-0458-FCO40-523-Future-of-financial-and-economic-policy-of-Hong-Kong-1975 — Page 18

CONFIDENTIAL

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Mr Holland

Mr Stuart

RECEIVED IN

0.51

REC!

MONETARY PROBLEMS IN HONG KONG

1.

24 SEF 1974

HKK 57 +3

See daft

better to UK. P/F 2014

Me

I am grateful to Mr Holland for his minute of 16 August below. As he says, the position of the Governor and the problems arising from the role of the Hong Kong Bank are two facets of the same conundrum.

2. At our meeting on 26 July to discuss Mr Stuart's report of 22 July on his visit to Hong Kong, we decided that we should try to let the Governor have some hopefully helpful thoughts on all this about now;

and I attach a MS draft letter to him which

Mr Wilford has been good enough to prepare.

3. On reflection, I tend to agree with Mr Wilford's conclusion that Hong Kong is stuck with Mr Haddon-Cave, because of both the difficulty of finding another suitable niche into which he might be attracted and of the possible effects of his removal from the scene. It is also true that, if Mr Haddon-Cave were to be removed, the Governor would (unless something else were done) still remain dependent on a solitary stream of advice from his successor, in which he might in fact have less confidence than that which he now receives from Mr Haddon-Cave.

4. In short, if the Governor is to be relieved of his lonely dependence on the Financial Secretary, there has to be

institutional change, which will provide him with another source of expert advice or at least better balanced and more comprehensive advice. And clearly what is needed is a central banking

institution or monetary authority. The question is how to begin to move towards that with Mr Haddon-Cave (as well as the Hong Kong Bank) in the way.

5. We shall obviously have to approach this very gingerly, but the Governor's recent frank talks with myself and Mr Stuart during our visits do at least enable us now to bring him into our thinking about tactics. I agree with Mr Wilford that the first step is to try to get an expert on to the ground in Hong Kong, who would have to be someone of top-notch international reputation and calibre to carry weight with Mr Haddon-Cave. Such a visit would not only give Sir Murray MacLehose someone to talk to privately and immediately about his financial and economic problems, but would also produce skilled advice on the Hong Kong situation which might provide openings for the further progress which we want to

see.

6. My present thinking therefore is that we should tell the Governor that this is the first step which we would like to try to organise in conjunction with him. It seems to us that, in the

/changing

CONFIDENTIAL