TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 148

SECRET

CHA

NCELLOR

OF

THE EXCHEQUER

Mr. Heam

нечко

12 28

Ps

Ps/de

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100/7

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200CT Treasury Chambers, Parliament Street, SWIP 3AG Whittard

DISK

INDEX

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Andrew Turnbull Esq

10 Downing Street

LONDON SW1

New Andrew,

HONG KONG

01-233 3000

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билан Tung

by

30 September 1983 iecewat

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13

Since the discussion with the Prime Minister in Washington reported in Robin Butler's letter of 28 September the Chancellor has considered the Hong Kong situation further with officials and with the Governor of the Bank of England and has asked me to let you know the conclusions he has reached and the action he is now taking.

Although the problem is fundamentally a political one, and the recent crisis was precipitated by intensified Chinese propaganda and anxiety at the absence of any reassuring element in the official communique on the talks in Peking on 22 and 23 September, the Hong Kong government are proposing to take action on the monetary front to try to resist further pressure on the exchange rate. The Chancellor thinks this right, for although the rate now appears to have stabilised at just below 8 Hong Kong $ to the US$, the situation remains fragile, and there can be no confidence that the present stability will last. He therefore agrees that action must be taken quickly, particularly since expectations have been raised by the announcement by the Hong Kong authorities last week that they were considering possible revisions in the mechanics for backing the note issue.

-

As the Prime Minister knows, the Chancellor had instructed Treasury officials to consider, with the Bank, a number of alternative responses. These included schemes along the lines suggested by Sir Alan Walters, together with:-

pegging the Hong Kong $ against the dollar or sterling, with HMG being prepared to intervene heavily in support;

SECRET