TNAG-1347-FCO40-1777-Financial-policy-in-Hong-Kong-1984 — Page 8

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· UNITED KINGDOM DELEGATION TO THE IBRD/IMF

c/o

British Embassy

нки

3100 Massachusetts Avenue NW Washington DC 20008

Telex Domestic USA 89-2370/E9-2384

Telex International 64224(WUI)/248308(RCA)/440015(ITT) Telephone (202) 462-1340

E T Barnes Esq

United Nations Dept. B

Overseas Development Administration London

Dear Enie

100/3......

22.

Your reference

Our reference

Date

22 August 1984

28

You will recall the exchange of telegrams in June/July between ourselves and Hong Kong about the possibility of a World Bank borrowing in Hong Kong dollars (our tels nos 2 & 3 of 29 June and 5 July and Hong Kong tel no 5 of 4 July refer). I am afraid that it has taken me some time to talk with van Agtmael who has been on leave. van Agtmael said that the timing of his visit had been unfortunate in relation to the weakness of the Hong Kong dollar at that time. He had however had a useful discussion with the Hong Kong

It had been made clear authorities and with some of the financial institutions. to him that the World Bank would receive no special privileges (e.g. in the matter of interest tax); but he remained interested in the possibility of a smallish Hong Kong dollar issue once market conditions were right. As you know, the background to this is that the Bank is facing limits of access at high cost in some of its major borrowing markets, and is anxious to diversify its funding as far as possible. Any issue in Hong Kong would probably be of five-year One of the Hong Kong maturity and placed with pension funds and provident funds. merchant banks had been in touch recently to express interest in underwriting such an issue. He understood that the Hong Kong authorities would be likely to be "neutral" about such an operation.

Yours sincerely

Ribad

R Manning

cc:

co

Hum Esq, Hong Kong Dept. FCO

A Pople Esq, Bank of England

M Goodfellow Esq, B/E Washington

Anthony Latter Esq, Deputy Secretary for

Monetary Affairs, Hong Kong

MON

SECRET

File

27

Foreign and Commonwealth Office

London SW1A 2AH

C W Kelly Esq

HM Treasury

Parliament Street

HKK

1003

LONDON SW1

Dear Chuis,

22 August 1984

24

́1. Thank you for your letter of 7 August about the report

that the Secretary of State in his meeting with Deng Xiaoping on 31 July said that "we would continue to sustain [the Hong Kong dollar] as we have done in the past". We have now received a virtually verbatim record of the conversation, which makes it quite clear that the Secretary of State was speaking in a political context. His actual words were: "Britain would continue to do its utmost to sustain it [the Hong Kong dollar] as they had done in recent months and years". The Chinese of course know as well as we do that we have done nothing directly to support the Hong Kong dollar on the exchanges in the past, so the sentence cannot be interpreted as a commitment to do so in the future. What I am sure the Secretary of State meant was that HMG would do what it could to maintain political confidence in such a way that the value of the Hong Kong dollar was maintained. If the paragraph is read as a whole, there could in fact be no reasonable doubt that this is what he meant.

2.

So I think you can set your hearts at ease.

Үние ем

Tuy

A C Galsworthy

Hong Kong Department

SECRET

CONFIDENTIAL

20

Reference...

HICK

100/3

29A

Mr Hum

Mr Galsworthy

гуз сък

FUTURE OF HONG KONG: SECRETARY OF STATE'S MEETING WITH DENG XIAOPING: SUPPORTING THE HONG KONG DOLLAR

Mr Kelly of the Treasury has written to you asking for confirmation that the Secretary of State did not give any commitment

1.

the Chinese that the UK would support the Hong Kong dollar. quotes from Hong Kong telno 2176 which reports the

to

He

Secretary of State as saying "we would continue to sustain [the Hong Kong dollar] as we have done in the past". What the Secretary of State actually said is shown in the official record (flag A) and in the shorthand note taker's record (flag B). These record that the Secretary of State did indeed say that Britain would continue to do its upmost to sustain the Hong Kong dollar. He was of course speaking in a political rather than an economic context. I attach a draft reply to Mr Kelly. (The ingenious device is I confess Mr Hom's aw

CODE 18-77

not by own.)

21 August 1984

CONFIDENTIAL

Jonathan Rall

J N Powell

Hong Kong Department