TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 92

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6. The Governor is empowered to exercise his powers under the Letters Patent in opposition to the advice given to him by EXCO if he deems this right, but is obliged to report on the grounds and reasons of his action. (See section XII of the Royal

Instructions). He will thus be seeking political backing vis-a-vis EXCO members rather than formal authorisation to proceed. It is highly unusual in modern times for the Governor to act against the advice of EXCO; in fact we cannot find any recent precedent and

doubt whether one has arisen over the past 20 years.

7. The Governor has made clear to us, in discussions last week, that he is very conscious of the significance and difficulty of taking such a step now. Clearly it would harm his relationship with EXCO at a time when he and HMG are seeking to build up the position of the

Unofficials. However Sir E Youde only intends to act against EXCO's advice if the financial position makes this absolutely necessary and, of course, after every effort to persuade them. On this understanding I believe it would be right for clear political backing to be given to the Governor to implement the measures which he considers most appropriate and most socially equitable in current circumstances. Depending on the exact nature of EXCO's opposition, this backing might take the form of authority to the Governor to inform EXCO that the Secretary of State had confidence in his judgement. Before giving such authorisation the Secretary of State may wish to speak to the Chancellor.

Article 4 of the

8.

There is one potential legal difficulty.

Exchange Fund Ordinance requires banks to pay to the Fund the "face value" of Certificates of Indebtedness, which are, and will continue to be, expressed in Hong Kong dollars. The proposal however is that banks should in future be required to pay in foreign currency, ie US dollars. It is not easy to reconcile this with the Ordinance. However, the Hong Kong Government and its legal advisers do not see any immediate need for amending legislation because the note-issuing banks have agreed to cooperate in this way and there seems therefore little risk of the procedure being challenged in the

courts. There is also an earlier precedent when from 1935-1972

banks were required to pay in sterling rather than Hong Kong dollars.

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