TNAG-1948-FCO40-2775-Hong-Kong-Banking-(Amendment)-Ordinance-1989-(No.-14-of-1989-1989 — Page 18

108g/mg1.pa O'MARA (547)

ради

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Peter Morris Esq

HM Treasury

Parliament Street London SW1P 3AG

Hong Kong Department

Switchboard 01-270 3000

Direct Dialling 01-270.4.699

Foreign and Commonwealth Office Downing Street East

London

Dear Peter,

HKC 102/5

28MAPK

21 March 1989

BACKING FOR HONG KONG FIDUCIARY NOTE ISSUE

ISSUE

I am writing to confirm that, as I told you yesterday, we are content with the HSBC's suggestion that United States Treasury Notes should be used as a backing for fiduciary note issues. I am sorry you have had to wait so long for a reply.

last

The fiduciary note issue is very small (only HK$60 million in the case of HSBC and HK$35 million for Standard Chartered) and while both the note-issuing banks have the option of using gilts as backing, the Bank of England tell us that Standard Chartered deposited British Government stock in November 1977 and HSBC discontinued doing so in May 1978. On this basis, using US Treasury Notes as backing will clearly have no implications for the UK gilt market and, given the link between the Hong Kong and US dollars, the proposal seems eminently sensible to us.

your fuceres,

Margaver O'har Марань

MISS M O'MARA