SECRET/D EDI P
20520
1
PREPARING TO TAKE FIRM ACTION ON 26 SEPTEMBER TO DEAL
WITH THE PROBLEM BY A PACKAGE OF MEASURES. THE
AUTHORITIES WOULD INTERVENE STRONGLY ON THE MARKET USING
THE RESERVES AS NECESSARY. THERE WOULD BE A SUBSTANTIAL
INCREASE IN INTEREST RATES. MEASURES WOULD BE INTRODUCED
TO IMPOSE TAXES AND PENALTIES ON COMPANIES DELAYING
REPARIATION OF EARNINGS. HADDON-CAVE CONFIRMED THAT
THE IMPOSITION OF EXCHANGE CONTROL WAS NOT A FEASIBLE
OPTION.
5. HADDON-CAVE CONSIDERED THAT IN THE LONGER TERM THE
CRISIS WOULD PROBABLY DIE DOWN, WITH THE PRESSURE BURNING
ITSELF OUT. THERE WAS NO ALTERNATIVE BUT FOR THE HONG
KONG AUTHORITIES TO SIT IT OUT. THERE WAS NO ACTION ON
THE ECONOMIC FRONT WHICH THE BRITISH GOVERNMENT COULD
USEFULLY TAKE AT THE PRESENT TIME. IT WAS TO BE HOPED
THAT OVER TIME THE CHINESE GOVERNMENT WOULD COME TO
APPRECIATE MORE CLEARLY THE ECONOMIC DAMAGE WHICH THEIR
RECENT STATEMENTS HAD CAUSED.
6.
THE CHANCELLOR HAS INSTRUCTED THE TREASURY TO MOBILISE
STUDIES, FOR REPORT TO HIM NOT LATER THAN HIS RETURN TO
LONDON, ON THE FOLLOWING:
THE PRESENT CAPACITY OF THE HONG KONG AUTHORITIES TO
CONTROL DOMESTIC MONEY SUPPLY, AND OPTIONS FOR SECURING
SATISFACTORY CONTROL:
- THE IMPLICATIONS OF STERLING SUPPORT OF THE HONG KONG
DOLLAR INCLUDING THE CHOICE OF INTERVENTION POINT AND ITS
IMPLICATIONS, LOCALLY AND FOR STERLING:
THE IMPLICATIONS OF THE RECENT AND PROSPECTIVE DECLINE
IN THE HONG KONG DOLLAR FOR THE LOCAL ECONOMY, SENTIMENT
AND SECURITY.
FCO PLEASE ADVANCE ONLY TO MIDDLETON (TREASURY), BALFOUR
(BANK OF ENGLAND). NO FURTHER DISTRIBUTION.
ENDS.
HOWE
LIMITED
HD/HKD
HDIERD
·AS
PS/PUS
MR GIFFARD AR EVANS
2
SECRET/DE DI P
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