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BANKS. IN SUCH CIRCUMSTANCES THE MAJOR BANKS WILL NO DOUBT BE WILLING TO RECYCLE ADDITIONAL FUNDS COMING TO THEM, BUT THE EXCHANGE FUND WILL ALSO NEED TO PROVIDE LIQUIDITY TO IND WIDUAL BANKS ON A LAST-RESORT BASIS. THE FINANCIAL SECRETARY WILL ALSO STAND READY TEMPORARILY TO RELAX THE STATUTORY LIQUIDITY REQUIRE- MENT FOR PARTICULAR BANKS OR BANK GROUPS.
12. WHILE STEPS CAN BE TAKEN TO PROVIDE RELIEF IN PARTICULAR
CASES, THE PROCESS OF ADJUSTMENT TO THE NEW SCHEME AND THE ESTABLISHMENT OF CONFIDENCE IN IT WILL BE FRUSTRATED IF THE GOVERNMENT WERE TO ACT INDISCRIMINATELY SO AS TO AVERT THE POSSIBLE INITIAL INTEREST RATE CONSEQUENCES.
THE RATS AND THE CURRENCY
13. ALTHOUGH THE EQUILIBRIUM EXCHANGE RATE CALCULATED PURELY BY REFERENCE TO CURRENT ECONOMIC FORCES MAY BE IN THE REGION OF
DOLLARS 7.00 OR BETTER, IT IS CRUCIAL FOR THE SUCCESS OF THE SCHEME THAT THE CHOSEN RATE 3E CREDIBLE TO THE MARKET AND TO
THE PUBLIC. A FAIR DISCOUNT FOR THE POLITICAL BANKGROUND IS THEREFORE AN ORDER, BUT SOME IMPROVEMENT ON THE PRESENT MARKET RATE (8.41/46 AT THE TIME OF WRITING) IS BOTH DESIRABLE AND FEASIBLE, AND WILL SQUEEZE AT LEAST A FEW BEARS.
14. A RATE OF DOLLARS 8.00 HS THEREFORE PRESENTLY SUGGESTED. THE
POSSIBILITY OF HAVING A SMALL SPREAD BETWEEN ISSUE AND REDEMPTION RATES FOR CS AND IS BEING CONSIDERED. THE FINANC-HAL SECRETARY WILL REPORT.
15. THE FINANCIAL SECRETARY WILL GIVE MEMBERS AT THE MEETING
THE ADMINISTRATION'S FINAL VIEWS ON THE APPROPRIATE RATE. HT WILL DEPEND ON THE LATEST EXCHANGE RATES.
16. THE RECOMMENDATION OF A U.S. DOLLAR CRITERION FOLLOWS FROM THE FACT THAT THE U.S. DOLLAR IS ESTABLISHED AS THE MAHN BENCHMARK CURRENCY HN BOTH THE MARKETS AND IN THE EYES OF THE PUBLIC AS EVIDENCED BY THE PANIC OF 23/24 SPETEMBER AS THE MAIN REFUGE CURRENCY. THE DAYS OF THE HONG KONG DOLLAR'S STERLING PEG APPEAR TO BE LONG FORGOTTEN AND A RETURN MIGHT PROVIDE GROUND FOR POLITICAL SPECULATION AND MISUNDERSTANDING.
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17. BY LINK ING CERTIFICATES OF INDEBTEDNESS TO ANOTHER CURRENCY HONG KONG WOULD BE TYING ITSELF, ONCE THING HAVE SETTLED DOWN, TO AN ARRANGEMENT BY WHICH DOMESTIC INTEREST RATES AND DOMESTIC NFLATION WILL BE SUBSTANTIALLY INFLUENCED BY THE BEHAVIOUR OF THE ECONOMY TO WHOSE CURRENCY IT IS TIED (THE U.S.A. IN THIS CASE). IT WAS, IN ESSENCE, THE POTENTIAL EFFECT OF SUCH THES
UPON THE HONG KONG ECONOMY WHICH LED TO THE ABANDONMENT OF THE
STERLING LINK IN 1972 AND THEN THE U.S. DOLLAR LINK IN 1974. ONE CANNOT BE SURE THAT SIMILAR PRESSURES WILL NOT DEVELOP LATER UNDER THE PRESENT PROPOSAL, BUT AT THIS JUNCTURE IN HONG KONG'S
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/ HISTORY
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