SECRET
4. THE VIEW HERE SEEMS TO BE THAT ON BALANCE A RISE IN INTEREST RATES AND FURTHER FALL IN ASSET VALUES (IN HK DOLLAR TERMS) IS LIKELY TO BE PREFERABLE (OR AT LEAST LESS DISASTROUS) THAN A FURTHER COLLAPSE IN THE EXCHANGE RATE. BUT THERE ARE OBVHOUS PROBLEMS. THE LOCAL CHINESE BANKS COULD FACE PARTICULARLY STRONG PRESSURES, AND WOULD PROBABLY NEED OFFICIAL SUPPORT. TRADERS COULD AVOID VERY HIGH HK DOLLAR INTEREST RATES BY SORROWING IN US DOLLAR, BUT PERSONAL BORROWERS (5.6. THOSE WITH HOUSING LOANS) AND PROPERTY COMPANIES COULD FACE ACUTE PROBLEMS IF RATES ROSE SUBSTANTIALLY AND STAYED AT A HIGH LEVEL FOR MORE THAN A VERY TERMPORARY PERIOD.
5. AT THE END OF THE DAY THIS IS A MATTER FOR POLITICAL JUDGEMENT ON WHICH WE HAVE MADE WT CLEAR WE ARE NOT COMPETENT TO ADVISE.
6. WE HAVE BEEN ASKED ABOUT THE ALTERNATIVE OF A STERLING LINK, RATHER THAN A DOLLAR LINK. OUR ANSWER HAS BEEN THAT IT IS CLEAR THAT THE US DOLLAR IS ALREADY A SECOND CURRENCY IN HONG KONG, AND THE ALTERNATIVE CURRENCY MOST RESIDENTS WOULD LIKE TO HOLD. A STERLING LINK WHILE PROBABLY TECHNICALLY FEASIBLE WOULD THEREFORE SEEM LESS NATURAL FROM A STRICTLY ECONOMIC POINT OF VIEW. (THOSE HERE ARE WELL AWARE OF THE POLITICAL DIMENSION TO THIS, OF THE COMPLICATIONS A STERLING LINK COULD CAUSE FOR US).
AND
7. ON TAMING AND PROCEDURE A DECISION TO GO AHEAD COULD NOT BE IMPLEMENTED UNTIL NEXT WEEK. A PRIOR DISCUSSION IN THE EXECUTIVE COUNCIL IS NEEDED ON A MATTER OF THIS IMPORTANCE AND MEMBERS OF THE COUNCIL LEAVE FOR LONDON TOMORROW NIGHT. THERE ARE MARKET ARGUMENTS FOR MOVING SWIFTLY: BUT ALSO STRONG ARGUMENTS FOR WAITING UNTIL A HOLIDAY OR WEEKEND. FIRIDAY 14TH HAPPENS TO BE A LOCAL HOLIDAY, AND MIGHT BE A SUITABLE DATE, UNLESS MARKET PRESSURES FORCE EARLIER IMPLEMENTATION NEXT WEEK. THERE IS OBVIOUSLY A QUESTION OF WHAT IF ANY KIND OF HOLDING STATEMENT TO MAKE IN THE MEANTIME, AND THIS IS BEING CONSIDERED.
8. IN SHORT, SUBJECT TO DISCUSSIONS YET TO BE HELD, OUR PRESENT VIEW IS THAT THE SCHEME SHOULD BE TECHNICALLY FEASIBLE. THERE ARE RISKS, AS WITH ALL COURSES OF ACTION INCLUDING INNACTION. AT PRESENT IT ALSO LOCKS AS IF THOSE HERE WILL DEC 1.25 TO GO AHEAD, BUT NOT UNTIL NEXT WEEK.
9. SO FAR OUR PRESENCE HAS NOT BEEN SPOTTED PUBLICLY AND WE HAVE NOT BEEN APPROACHED BY JOURNALISTS. BUT THE HK DOLLAR POSE 20 CENTS TODAY ON A RUMOUR THAT SOMEONE FROM THE SAJK OF ENGLAND
WAS IN TOWN.
10. WE HAVE MADE IT CLEAR THROUGHOUT THAT OUR REMIT IS ONLY TO ADVISE ON THE MERITS OF THE SCHEME AND TO SUGGEST DETAILED IMPROVEMENTS: AND THAT THE DECISION ON WHETHER OR NOT TO GO AHEAD IS FOR THE HONG KONG GOVERNMENT, NOT FOR THE UK AUTHORITIES.
SECRET -+-
|||
No comments yet.
Private notes are available after approval.