TNAG-1173-FCO40-1465-Future-of-Hong-Kong-special-study-by-FCO-for-the-Prime-Minis-1982 — Page 188

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be the Hong Kong Government which would act as lender

of last resort to the system, using the assets of the

Exchange Fund.

Effects of a Crisis

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9. In practice, a simple liquidity crisis in Hong Kong

would be a matter affecting individual banks and containable

within the established machinery. It is also possible to

envisage more serious domestic ecnonomic problems involving

the solvency of the banking system, such as a property

collapse or other major economic upset. In practice this

could be containable provided the situation arose from

commercial factors and not from an actual or even anticipated

change in the political situation, but it could affect

external confidence too. A more serious threat to the

system as a whole could result from a major shift out of

Hong Kong dollars altogether such as might be stimulated by

worries about relations with China. This would quickly

affect, and very seriously, the exchange rate of the Hong

Kong dollar. In other words, the crisis would be a foreign

exchange crisis and the Exchange Fund's commitment as

lender of last resort would be to act as foreign exchange

dealer of last resort standing ready to use its foreign

exchange assets to purchase Hong Kong dollars. However the

Exchange Fund assets are not unlimited, although they have

risen substantially in recent years. At present levels of

import prices the Fund's assets represent about 19 weeks

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