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3. H AM VERY CONCERNED AT THE POSSIBLE CONSEQUENCES OF NOT PROCEEDING NOW. WE HAVE BUILT UP HOPES, AND EVEN THIS MORNING ON RTHK SMA 4S QUOTED AS HAVING SAID THAT THE SCHEME WOULD BE READY SOON.
4. 4. HAVE BEEN THANKING OVERNIGHT ABOUT THE QUESTION OF CONSULTING THE BANK OF ENGLAND. DO NOT BELIEVE THAT ANY FURTHER LIGHT WOULD BE THROWN ON THE PRINCIPLES OF THE SCHEME (SNICE FOUR ECONOMISTS HERE, CHEUNG, MCLEAN, GREENWOOD AND MYSELF) - OF WIDELY VARYNG BACKGROUNDS APPEARED TO BE HN AGREEMENT ON THE THEORY. WHETHER OR NOT AN OUTSIDER WOULD BE ABLE TO GIVE ANY FHRMER INDICATION THAN WE CAN AS TO THE PRACTICAL CONSEQUENSES MUST ALSO, He THINK, BE DOUBTED. HOWEVER, EXPECT THAT AN AUTHOR:HTATHYE OPHION AND ADVICE WOULD CERTAYNLY HELP TO SET OUR OWN MANDS AT EASE, WHICHEVER WAY THE ADVICE POINTED. MYSELF WOULD CERTAINLY WELCOME THE OPPORTUNITY TO DISCUSS THE MATTER, BUT THINK THAT MY MOTIVE WOULD BE TO SHARE THE BLAME FOR ANY EVENTUAL DECHSHION RATHER THAN HOPING TO RECEWE MUCH ADDITIONAL ENLIGHTENMENT. THE PROBLEM HS, OF COURSE, THAT TIME HAS ALMOST RUN OUT.
A PLAN FOR STABKISHING THE EXCHANGE RATE.
:INTRODUCTION.
FOR ABOUT A DECADE HONG KONG HAS HAD A FLOATING EXCHANGE RATE. DESPITE SOME LACK OF MONETARY DISCHPLINE DOMESTICALLY FROM TUME TO TIME, FLOATING HIS GENERALLY JUDGED TO HAVE BEEN QUITE SUCCESSFUL: THE AUTOMATIC ADJUSTMENT PROCESS' UNHERENT HIN FLOAT UNG HAS PROBABLY CONTRIBUTED TO THE RAPINO REAL ECONOMIC GROWTH THAT HAS BEEN ACHIEVED, ALTHOUGH INFLATION HAS OFTEN BEEN SOMEWHAT TOO FAST FOR COMFORT.
2. THE PROBLEM NOW IS THAT THE FUNDAMENTAL ECONOMIC FORCES OF THE ADJUSTMENT PROCESS ARE NO LONGER HOLDANG SWAY. EXCHANGE RATE DETERMINATION HAS BEEN TAKEN OVER BY THE POLITICAL CONF-IDENCE FACTOR DESPITE THE PRESENT RESPITE THE POTENTIAL FOR DECLINE IN THE RATE APPEARS TO REMAIN BOUNDLESS, GOVERNMENT 4S LOSING CREDIBILITY AND PROPLE ARE THUS LOSING FAITH IN HIT: RAMPANT FLATHON LOOMS; AND SOCIAL DISORDER IS BECOMING A VERY REAL THREAT. THE EXCHANGE RATE NS NOW (NEXT WORD UNDERLMED) THE CENTRAL MSSUE.
3. CLEARLY SOMETHING HAS TO BE DONE, EXCHANGE CONTROLS ARE RULED OUT ON BOTH POLICY AND PRACTICAL GROUNDS. EXCHANGE MARKET INTERVENTION HAS BEEN SEEN TO PROVIDE AT MOST TEMPORARY SUPPORT. WATEREST RATES CANNOT ULTIMATELY BE SET AGAINST MARKET FORCES.
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