TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 53

GR 1000

SECRET

DESKBY FCO 1312GOZ

DESK BY PEKING 14010GZ

FM HONG KONG 131050Z OCT 83

TO IMMEDIATE FCO

HKK

10017

RECOIVED HIKARSTRY NO. 51

SECRET

OFSK INDEX

20 OCT 1983

ПEMISTRY

"on Taken

TELEGRAM NUMBER 1522 OF 13 OCTOBER

INFO IMMEDIATE PEKING (PERSONAL FOR CHARGE)

FOLLOWING STRICTLY PERSONAL FOR CLIFT (HKD)

MFT.

(78)

STABILISATION OF EXCHANGE RATE.

See

76A

See

78

See (80

FOLLOWING HIS TEXT OF STATEMENT WHICH THE FINANCIAL SECRETARY

WILL MAKE AT NOON HONG KONG TIME SATURDAY OCTOBER 15.

* WANT TO TELL YOU ABOUT TWO STEPS WHICH THE GOVERNMENT IS TAKING NOW TO STABILISE THE EXCHANGE RATE OF THE HONG KONG DOLLAR.

2. FIRST LET ME GIVE YOU SOME BACKGROUND. FOR 37 YEARS FROM 1935 TO JULY 1972 THE HONG KONG DOLLAR WAS PEGGED TO STERLING. IN THOSE DAYS THE STERLING AREA EXISTED AND FOR MOST OF THAT PERIOD THE INTERNATIONAL MONETARY SYSTEM WAS CHARACTERISED BY FIXED EXCHANGE RATES. FROM 1972 TO NOVEMBER 1974 THE HONG KONG DOLLAR WAS PEGGED TO THE US DOLLAR. SINCE 1974 HONG KONG IN COMMON WHITH OTHER MAJOR MARKET ECONOMIES HAS HAD A FREELY FLOATING EXCHANGE RATE. THIS FLOATING SYSTEM HAS SERVED US WELL. IT HAS GIVEN US A MEASURE OF INSULATION FROM THE UPS AND DOWNS OF OTHER ECONOMIES, AND UNDER HT HONG KONG HAS RECORDED VERY HIGH RATES OF ECONOMIC GROWTH. LIVING STANDARDS HAVE RISEN ACCORDINGLY.

3. TOWARDS THE END OF LAST YEAR THE EXCHANGE RATE STARTED MARKEDLY TO WEAKEN, REFLECTING AMONGST OTHER FACTORS UNCERTAINTIES ABOUT HONG KONG'S FUTURE.

4. BEFORE THE GOVERNMENT ANNOUNCED THREE WEEKS AGO THAT WT WAS CONSIDERING PORPOSALS TO STABILISE THE EXCHANGE RATE CURRENCY DEPRECIATION WAS TENDING INCREASINGLY TO FEED ON ITSELF IN AN UNSTABLE AND IRRATIONAL MANNER. THUS DEPRECIATION WAS NOT JUSTIFIED BY ETHER CURRENT ECONOMIC DEVELOPMENTS OR FUTURE PROSPECTS. THE ECONOMY HAS RESOUNDED AND IS DOING VERY WELL. THERE IS LITTLE UNEMPLOYMENT AND EXPRTS ARE 300MING. HONG KONG HAS SUBSTANTIAL FOREIGN CURRENCY RESERVES, A GENERALLY LIQUID BANKING SYSTEM AND VIRTUALLY NO GOVERNMENT DEBT.

5. THE GOVERNMENT HAS BEEN CONCERNED BY THE FALLING EXCHANGE RATE AND HAS DONE EVERYTHING IN REASON, WITHIN THE ESTABLISHED FRAMEWORK, TO ATTEMPT TO STABILISE IT. THESE EFFORTS HAVE ACHIEVED ONLY LIMITED SUCCESS.

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