TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 217

From the Principal Private Secretary

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INJEK

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20 OCT 1983

37

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SECRET

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10 DOWNING STREET

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مساسه الام

PSIPUS Whittard n Evans

28 September, 1983

Ar Darald

30/9.

See 28

Dear John,

The Prime Minister held a meeting at the British Embassy in Washington this evening about the financial situation in Hong Kong. The Chancellor of the Exchequer, the Governor of the Bank of England, Sir Robert Armstrong, Sir Antony Acland, Sir Oliver Wright,

Sir Terry Burns, Sir Alan Walters, Mr. Littler and Mr. Loehnis also present.

were

on

The Prime Minister said that she had wanted an early discussion measures which could be taken to stabilise the Hong Kong dollar since, even if there was no further fall in the meantime, there could be one following the next round of talks on Hong Kong with the Chinese government

Sir Oliver Wright reported on 19 and 20 October. that the Foreign and Commonwealth Secretary had spoken to the Chinese Ambassador but had received only the response that the problems of the Hong Kong dollar had nothing to do with the actions of the Chinese government and were solely attributable to British intransigence.

The Chancellor and the Governor reported on the latest situation in Hong Kong, following the measures taken by the Hong Kong authorities earlier in the week. The Hong Kong dollar had now regained the ground which it had lost a week ago. This had been partly achieved by high interest rates and partly by intervention, believed to have been substantial at times, in a

thin market. Such measures were bound to be a palliative since the origin of the the problem was political and the solution would also have to be political. Nevertheless, although measures of this sort involving high interest rates would be damaging if they had to be sustained, Hong Kong was a market-orientated economy and there was likely to be a point at which the market would take the view that Hong Kong's assets were worth holding even for fourteen years.

The Prime Minister said that she was concerned about the effect

since SO

of a fall in the dollar on the ordinary people of Hong Kong, much of Hong Kong's food and other essentials were imported. Sir Alan Walters added that intervention to support the Hong Kong dollar did not reduce the money supply. To the extent that intervention was

SECRET

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