ENG-1968 — Page 22

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PROGRESS

be found or invented. There was little or no public response to these efforts, and the police force, largely freed by the beginning of the year from more urgent duties, were able once again to turn their full attention to the prevention and detection of crime. Although there had been some increase in the lawlessness of criminal elements and in the number of offences committed under the cloak of a period of civil disorder, the resumption of normal police duties quickly helped to restore the position.

The basic aim of the Government continued to be to preserve law and order and to provide a place where people may live and work in peace. A threat to Hong Kong's economic progress had however developed in late 1967 when the pound sterling was devalued, and the beginning of the year was a time of much discus- sion about the effect of devaluation on the Colony. In November 1967 Hong Kong had adjusted to a new relationship with sterling and the US dollar by virtue of the final upward revaluation against sterling of the Hong Kong dollar, moving from $16: £1 to $14.54 : £1, and a devaluation of the Hong Kong dollar against the US dollar of about 5.7 per cent, giving a new rate of $6.06: US$1. The devaluation of the pound cost the Colony about $700 million; the new parity finally adopted and the decision to compensate commercial banks for their exchange losses had the effect of meeting $450 million of the cost from public funds. It was evident, therefore, that measures were needed to protect Hong Kong's sterling holdings against any possible future adverse movements in the sterling exchange rate. The Governor and the Financial Secretary had discussions in London, and on June 1 the Governor announced to the people of the Colony that arrangements had been made for the issue of interest-bearing bonds expressed in Hong Kong dollars. These bonds could be purchased with the Colony's sterling reserve up to an amount equal to half the official external assets of the Colony, subject to a top limit of £150 million.

The Colony was later covered by the arrangements negotiated by the British Government with the rest of the sterling area for a guarantee, in terms of US dollars, of all sterling held in excess of 10 per cent of their total external assets. This meant that 90 per cent of the Colony's sterling assets were covered by this arrangement. The Hong Kong dollar bond arrangement lapsed on the coming into force of the new guarantee on September 25. Thus the uneasiness