LEGISLATION
SECRET
22. SECTION 4(1) OF THE EXCHANGE FUND ORDINACE (CHAPTER 66) STATES THAT THE NOTE-ISSUING BANKS SHOULD PAY THE FACE VALUE OF CERTIFICATES OF INDEBTEDNESS TO THE EXCHANGE FUND. THE VALUE OF THE CERTIFICATE HIS EXPRESSED ON AT IN HONG KONG DOLLARS. THIS MIGHT SUGGEST THAT LEGISLATIVE AMENDMENTS REQUIRED IN ORDER TO OPERATE THE SCHEME, BUT IN EARLIER YEARS STERLING WAS USED WITHOUT ANY SUCH AMENDMENT. SINCE THE NOTE-ISSUING BANKS HAVE AGREED TO CO-OPERATE IN FOREIGN CURRENCY PAYMENTS, THERE DOES NOT APPEAR TO BE ANY IMMED HATE NEED
FOR LEGISLATION.
COSTS
23. AS OUTLINED EARLYER, THE THRUST OF THE SCHEME AS TO SHIFT THE BURDEN OF ADJUSTMENT TO CRISES IN CONFIDENCE AWAY FROM THE EXCHANGE RATE AND ONTO THE BANKS AND HENCE BORROWERS. THE SCHEME SHOULD NOT, IN PRINCIPLE, INVOLVE ANY HINTERVENTION BY THE EXCHANGE FUND IN THE FOREIGN EXCHANGE MARKET, ALTHOUGH THERE MAY BE REASON, AT ANY RATE IN THE INITIAL PHASE, TO INTERVENE IN ORDER TO EASE THE TRANSITION. THE FORMAL COMMITMENT OF THE EXCHANGE FUND WILL BE LIMITED TO REDEEMING ANY AMOUNT OF THE NOTE ISSUE AS THE FIXED RATE. THE NOTE SSUE CURRENTLY STANDS AT HK DOLLARS
14 AND ONE HALF BILLION (LESS THAN US DOLLARS 2 BN AT A RATE OF DOLLARS 8.00). IN THE VERY WORST CARCUMSTANCES THIS SUM IS AT RISK. THE FUND'S FOREIGN CURRENCY HOLDINGS ARE VERY GREATLY IN EXCESS OF
THIS.
TIMING
24. IF THE DECISION IS TAKEN TO PROCEED, IT IS ENVISAGED THAT THE NEW ARRANGEMENTS WOULD BE ANNOUNCED BY THE FINANCIAL SECRETARY ON THE EVENING OF THURSDAY 13 OCTOBER. THE FOLLOWING DAY IS A BANK HOLIDAY IN HONG KONG. THE CHAIRMAN OF THE HONG KONG ASSOCIATION OF BANKS HAS BEEN CONSULTED AND CONSIDERS THAT BANKS SHOULD BE ABLE
TO COPE WITH OPENING AS USUAL ON SATURDAY. WHEN THIS PAPER IS
DISSCUSSED THERE MAY BE REASON FOR MODIFICATION OF THIS PLAN.
PRESENTATION AND PUBLIC REACTION
25. A RECURRENT THEME IN THIS MEMORANDUM HAS BEEN THE IMPORTANCE
OF THE PRESENTATION OF THE SCHEME TO THE PUBLIC. THE FINANCIAL
SECRETARY PROPOSES TO DELIVER A CAREFULLY PREPARED STATEMENT, FOLLOWED BY A PRESS CONFERENCE ON THURSDAY EVENING. BRIEFING FOR BANKS WILL BE PREPARED BY BOTH THE MONETARY AFFAIRS BRANCH AND THE NOTE-HSSUING BANKS WITH A VIEW TO OBTAINING THEIR FULLEST AND
PROPERLY INFORMED CO-OPERATION.
26. IN ORDER TO AVOID ANY COMPLAINTS BY (OR AGAINST) THE NOTE- ISSUING BANKS TO THE EFFECT THAT THE SCHEME WAS UNDULY COSTLY (OR BENEFICIAL) TO THEM, THEY WILL ARRANGE THAT ALL OTHER BANKS DRAW OR SURRENDER NOTES TO THEM ON EXACTLY THE SAME PAYMENT BASIS
AS THEY ARE SUBJECT TO FOR CERTIFICATS OF INDEBTEDNESS
...E.
AGAINST US DOLLARS AT THE FIXED RATE. IT IS NECESSARY TO EMPHASISE THAT THE RATE AT WHICH BANKS DEAL IN FOREIGN EXCHANGE
SECRET
/WITH
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