TNAG-1269-FCO40-1619-Banking-situation-in-Hong-Kong-1983 — Page 146

3.17.

MKK

10015

20 OCT 1983

INDEX

SECRET

NCELLOR

OF

EEXCHEC

THE E

HEQUER

Дам

*

Crom%

ния

Aps

104

Mr. Ham

PS/n me PSIPUS

Ас

RECORD OF A MEETING BETWEEN THE CHANCELLOR OF THE EXCHEQUER & Danalo

AND THE GOVERNOR OF HONG KONG:

4.00 P.M., 7 OCTOBER, NO.11 DOWNING STREET

FERD

Jut

10/10

Sir E Youde said that he had been very grateful for the recent advisory visit by Mr Peretz and Mr Goodhart in connection with the proposed scheme to stabilize the Hong Kong exchange rate. They had done an excellent job. The Hong Kong Financial Secretary was preparing a paper on the scheme for EXCO: he would see it on his return to Hong Kong on 9 October; and EXCO would consider the paper on 12 October. If they approved the scheme, it would be introduced on the evening of 13 October. Predicting EXCO's reactions was difficult: their reactions might in part be affected by the health of the Hong Kong $ during

the course of next week.

2. The Chancellor said that Peretz and Goodhart had thought the scheme workable and

appropriate. It was of course important not to expect too much of it. The awkward Hong

Kong political situation was bound to have an adverse financial manifestation; and no

financial scheme, however ingenious, could prevent that. The question was where to take

the strain, on interest rates or on the exchange rate. If the Governor thought it best to shift

it away from the exchange rate, we would certainly not wish to dissuade him. Moreover the

scheme would remedy a long term weakness in the Hong Kong monetary system, to which the Bank of England had long drawn attention, and which had been highlighted by the political crisis.

3. Sir E Youde thought that some in EXCO might feel, if the movement of the Hong Kong $ next week was similar to this weeks, that the crisis had passed, and did not call for a

major change, such as the introduction of the scheme. He was however inclined to feel that

considerable underlying instability would remain. But if the scheme were introduced, and

the next round of talks with Peking went well and produced no adverse reactions, he might be criticised for an unnecessary "panic measure". The Chancellor thought that such

criticism would be unreasonable. The insulation provided by the scheme was bound to be