FO371-24687 — Page 64

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•3460176 3 JUL 194

LIMITED DISTRIBUTION.

The Governor (Hongkong)

Decypher.

D.

No. 84.

4.54 p.m.

R. 11.30 a.m.

VVVVVVV

INMEDIATE.

Your telegram No.322.

3rd July, 1940.

3rd July, 1940.

3rd July, 1940.

10

ل

18 B

the stabilization Mr. Rogers is fighting hard On behalf In seem that his Fund, but it

th

Following for Treasury from Rogers.

SECRET

efforts will preserve the leak. which by are trying to stop (or so it seems to a lay mind).

Ausest 4/7

copy has been sent 45 thes Wally by Room HH.

Following views on measures announced on June 9th upon which my telegram No.77 was based may assist you in sending me an explanation of the new arrangements.

Chinese

16.2.++9.

416

1. If it is acceptable that:- (a) transfer to China and Hongkong of claims on Netherlands Government in respect of legitimate trade and services etc., must entail an outflow of exchange either through absorption on free markets of exchange which could otherwise be received by Control or else through direct transfer by Control.

(b) Payment agreement cannot be applied to China and Hongkong: there would seem to be three ways of dealing with claims of China and Hongkong on the Empire, viz:

(c) to pass sterling claims through official control

(a) to provide that transfer to China and Hongkong should be made in non-Empire currencies

(e) to do nothing i.e. to leave sterling to be converted into United States dollars, etc., at whatever price it would fetch on a free market.

2. In favour of (c) and (d) would be the almost complete elimination of free market in sterling. Disadvantage of (d) especially as regards Hongkong would be the serious dislocation of normal trade and financing channels. (e) could only place the funds of Hongkong in serious difficulties and would appear tantamount to discrimination in favour of creditors in countries with which payment agreements can be made.

3. Balance advantage had therefore seemed to me to be in favour of course (c) and I had indeed read your telegrams in that light until the receipt of your telegram under reference. I fear that course (e) may be interpreted here as indicating that Control in unable to fulfil the essential requirements of (c) viz. complete cessation of leakage from sterling area and that China and Hongkong have little alternative but to bear the cost of this deficiency.

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