TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 85

SECRET

23791

1

{

THE RESULTING LOSS OF REVENUE.

STATE'S APPROVAL IS REQUIRED).

(THE SECRETARY OF

4. THE GOVERNOR BELIEVES THAT EXCO MIGHT POSSIBLY BE OPPOSED

TO HIS PROPOSALS. THE SCHEME WOULD PLACE THE BANKS IN THE

FRONT LINE. THE BURDEN OF HIGHER INTEREST RATES WOULD FALL ON

BORROWERS, NOTABLY HOME BUYERS AND SUCH HIGHLY-GEARED COMPANIES

AS THOSE IN THE DISTRESSED PROPERTY SECTOR. IN THE GOVERNOR'S

VIEW PRESSURE ON THE BANKS AND ON INTEREST RATES WOULD BE

PREFERABLE TO PRESSURE ON THE EXCHANGE FUND AND THE EXCHANGE

HE WOULD PUT THIS VIEW STRONGLY TO EXCO, AS WELL AS

THE POINT THAT SUCH AN ARRANGEMENT WOULD HELP HMG'S STANCE

IN THE NEGOTIATIONS. HOWEVER, EXCO MIGHT NOT AGREE, SINCE

BANKING AND PROPERTY INTERESTS ARE STRONGLY REPRESENTED AMONGST

THEM.

RATE.

5. THE GOVERNOR IS EMPOWERED TO ACT IN OPPOSITION TO THE

ADVICE GIVEN TO HIM BY EXCO IF HE DEEMS THIS RIGHT BUT HAS

TO REPORT TO THE SECRETARY OF STATE ON THE GROUNDS AND REASONS

FOR HIS ACTION. HE WILL THUS BE SEEKING POLITICAL BACKING

VIS-A-VIS EXCO MEMBERS RATHER THAN FORMAL AUTHORISATION TO

PROCEED. BUT IT IS HIGHLY UNUSUAL FOR THE GOVERNOR TO ACT

AGAINST THE ADVICE OF EXCO. WE CANNOT FIND ANY PRECEDENT FOR

THE PAST 20 YEARS.

6. THE GOVERNOR IS VERY CONSCIOUS OF THE SIGNIFICANCE AND

DIFFICULTY OF SUCH A STEP NOW. CLEARLY IT WOULD HARM HIS

RELATIONSHIP AT A PARTICULARLY AWKWARD MOMENT. HOWEVER HE

ONLY INTENDS TO ACT AGAINST EXCO'S ADVICE IF THE FINANCIAL

POSITION MAKES THIS ABSOLUTELY NECESSARY AND AFTER EVERY EFFORT

TO PERSUADE THEM.

ARTICLE 4 OF THE

7. THERE IS ONE POTENTIAL LEGAL DIFFICULTY.

EXCHANGE FUND ORDINANCE REQUIRES BANKS TO PAY TO THE FUND THE

'FACE VALUE' OF CERTIFICATES OF INDEBTEDNESS, EXPRESSED IN

HONG KONG DOLLARS. THE PROPOSAL HOWEVER IS THAT BANKS SHOULD IN

i FUTURE BE REQUIRED TO PAY IN US DOLLARS. HOWEVER, THE HONG KONG

GOVERNMENT AND ITS LEGAL ADVISERS DO NOT SEE ANY IMMEDIATE NEED

FOR AMENDING LEGISLATION.

8. IN THE RATHER UNLIKELY EVENT OF A LEGAL CHALLENGE THE

2

SECRET

MATTER