14.
Sts dollar by rather more than was justified by the decline
of the United States dollaw elsewhere, and, in part, this was due to speculation against the United States dollar by Hong
Kong's banks many of whom, with the substantial inflows of funds, found themselves with large uncovered United States dollar
positions.
29.
The resultant heavy and sustained pressure on the
exchange rate in Hong Kong forced the government to allow the
Hong Kong dollar to float in order to avoid the further exchango losnos for the Exchango Mind (now in dorioit) which
support oporations would havo ontailed. By January 1975, the trade-weighted currency index for the Hong Kong dollar (Decem- ber 1971=100) had moved to 109, compared with 103 in the middle
of 1974. This caused further considerable anxieties for expor-
ters, but the government managed to nudge the index back to
about 104 by June. However, substantial net flows of short- term capital into Hong Kong are continuing (estimated at HKZ4000 million for the first seven months of 1975) and these threaten to undermine the stability of the money market, largely by virtue of the fact that they could be withdrawn from Hong Kong at a moment's notice). Thus, for all practical purposes, the liquidity of the banking system remains relatively tight and such advances and loans as are now being extended are
largely being facilitated by balances made available to Hong
Kong by branch banks' overseas head offices.
The Short-term Economic Outlook
30. Since the beginning of 1975, the evidence suggests that
the Hong Kong economy may have bottomed-out, though this cannot be asserted with any degree of certainty since as yet there are
no really very clear signs that an upturn in world demand is in
sight, though the outlook for the United States economy which
takes some 35%, by value, of Hong Kong's domestic exports, is
certainly now rather more rosy than even a few months ago. As
it happens, however, there have recently been signs of an
improvement in Hong Kong's immediate trading prospects.
April, the quantities exported began to increase again, by about 12% (over the monthly average for the first quarter) and there was a corresponding increase, of 11%, for imports or raw materials and semi-manufactures. There was also a lengthening of order-books among the larger firms in the second quarter,
In
/and employment
CONFIDENTAL
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576 D073528 200M 2/74 Cr.P.C. $39/3
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