GR 800
HKK
LIVED IN ?
100/7
20 OCT 1983
SECRET
Mr. Hum
SECRET
FM HONG KONG 041015Z OCT 83
TO IMMEDIATE FOO
TELEGRAM NUMBER 1471 OF 4 OCTOBER
(LiO
PERSONAL FOR CLIFT
FOLLOWING FOR LITTLER TREASURY FROM PERETZ AND GOODHART
See (42
THIS IS A PROGRESS REPORT. WILL REPORT FURTHER TOMORROW AT MORE
LENGTH, AND PERETZ WILL BE ABLE TO REPORT FURTHER ON RETURN TO LONDON
ON 6 OCTOBER, MORNING.
WE HAVE DISCUSSED PROPOSED SCHEME SO FAR WITH OFFICIALS, PROFESSOR CHEUNG (WHO OPPOSES IT) AND HAMMOND, DEPUTY CHAIRMAN OF HONG KONG AND SHANGHAI: BANK, WHO THINKS IT IS THE LEAST BAD OF AVAILABLE
OPTIONS. HAVE ALSO HAD DISCUSSIONS WITH SIR JOH BREMRIDGE AND GOVERNOR. TOMORROW WE MEET GREENWOOD, SIR PHILIP HADDON-CAVE AND BILL BROWN, CHAIRMAN OF HONG KONG ASSOCIATION OF BANKS.
ON SUBSTANCE, BRIEFLY, OUR OWN CONCLUSION SO FAR IS THAT THE SCHEME:
A) SHOULD BE TECHNICALLY WORKABLE, ALTHOUGH THERE MAY BE SOME DETAILED POINTS NOT FULLY THOUGHT THROUGH YET AT THIS END ON WHICH WE MAY BE ABLE TO OFFER ADVICE.
3) SHOULD NOT PUT AT RISK ANY GREATER PROPORTION OF THE EXCHANGE FUND'S FOREIGN CURRENCY ASSETS THAN ARE REQUIRED TO BACK THE
NOTE ISSUE.
C1 COULD BY ITS ANNOUNCEMENT HELP TO REDUCE PRESSURES OF CAPITAL OUTFLOWS, +N SO FAR AS THE FALL IN THE EXCHANGE RATE HAS SHOWN SIGNS OF SECOMING SELF-FEEDING.
D) BUT, AS WE THOUGHT, (NEXT WORD UNDERL (WED) WOULD SHIFT PRESSURES ON TO THE BANKING SYSTEM AND, TO THE EXTENT THAT BANKS COULD NOT OR PREFERRED NOT TO MEET THESE PRESSURES BY DRAWING ON THEIR EXISTING (VERY SUBSTANTIAL) NET FOREIGH CURRENCY ASSETS, ON INTEREST RATES (AND ON DOMESTIC ASSET PRICES).
3. THE SCHENE IS ESSENT PALLY A TRADITIONAL QUOTE CURRENCY BOARD UNGUOTE ARRANGEMENT. HONG KONG IS IN SOME WAYS WELL PLACED TO MAKE
THIS WORK BECAUSE OF THE SIZE OF THE EXCHANGE FUND RELATIVE TO THE
NOTE ISSUE: THE STRONG NET FOREIGN CURRENCY PUSITION OF THE BANKS:
AND THE STRONG UNDERLYING ECONOMY WITH EXPORTS OF MANUFACTURES
DOING WELL.
SECRET
14.
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