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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 IS QUOTED AS HAVING SAND THAT THE SCHEME WOULD BE
READY SOON.
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 (SINCE FOUR
ECONOMISTS HERE, CHEUNG, MCLEAN, GREENWOOD AND MYSELF) – OF WIDELY VARYING BACKGROUNDS APPEARED TO BE AN AGREEMENT ON THE THEORY. WHETHER OR NOT AN OUTSIDER WOULD BE ABLE TO GIVE ANY
FIRMER UNDICATION THAN WE CAN AS TO THE PRACTICAL CONSEQUENSES
MUST ALSO, THINK, BE DOUBTED. HOWEVER, EXPECT THAT AN
AUTHOR:NTATIVE OP-NON AND ADVICE WOULD CERTAINLY HELP TO SET OUR OWN MANDS AT EASE, WHICHEVER WAY THE ADVICE POINTED. MYSELF WOULD CERTAINLY WELCOME THE OPPORTUNITY TO DISCUSS THE MATTER, BUT ** THANK THAT MY MOTIVE WOULD BE TO SHARE THE BLAME FOR ANY
EVENTUAL DECKSHION RATHER THAN HOPING TO RECEIVE MUCH ADDITIONAL
ENLIGHTENMENT. THE PROBLEM IS, OF COURSE, THAT TIME HAS ALMOST RUN OUT.
A PLAN FOR STABLISHING THE EXCHANGE RATE.
INTRODUCTION.
FOR ABOUT A DECADE HONG KONG HAS HAD A FLOATING EXCHANGE RATE.
DESPITE SOME LACK OF MONETARY DISCIPLINE DOMESTICALLY FROM TIME
TO TIME, FLOATHING IS GENERALLY JUDGED TO HAVE BEEN QUITE SUCCESSFUL: THE AUTOMATIC ADJUSTMENT PROCESS' WHERENT IN
FLOATING HAS PROBABLY CONTRIBUTED TO THE RAPID 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 HOLDING SWAY. EXCHANGE RATE
DETERMINATION HAS BEEN TAKEN OVER BY THE POLITICAL CONFIDENCE 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 FATH IN IT: RAMPANT HINFLATHON LOOMS: AND
SOC:HAL DISORDER IS BECOMING A VERY REAL THREAT. THE EXCHANGE RATE
<HS NOW (NEXT WORD UNDERLINED) THE CENTRAL ISSUE.
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.
LNTEREST RATES CANNOT ULTIMATELY BE SET AGAINST MARKET FORCES.
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