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can be justified in its own terms, work towards a situation in which a CMI is a logical, indeed obvious, development? It may be that the Bank of England has contemplated such an approach, and that there are good and sufficient reasons for rejecting it. But to the layman, there do seem to be some possibilities.
6. Thus, as I look down the list at the end of the Bank of England's paper, I notice that on at least two items
powers to ensure the proper conduct of banks and other financial institutions;
and powers to vary liquidity ratios there are already changes under discussion. Possibly, if one had it in mind that powers were being created which would in due course fall to be operated by a central monetary institu- tion, one might wish that the new powers were taken in a particular form. On this, the Bank of England might well be willing to profer further technical advice.
7. Another item is powers to deal in Government debt. This, on the face of it, looks premature in that there is at present virtually no Government debt to deal in. But there are those who think that there might well be a case for a gentle introduction of some Government debt into the system. If and when this happens, there will indeed be questions about where and how this debt is to be managed. Here again,
there would I think be a case for suggesting that the answers to these questions should be such as to be compatible with an idea that a central monetary institution could in due course deal in, and take over the day- to-day management of, Government debt.
8. Yet other items impinge upon the present role of the Hong Kong and Shanghai Bank. This is a difficult area; but as we discussed, there might be possibilities of an intermediate stage in which that Bank carries out certain functions as the agent of Government, subject to Government directives as necessary. This of itself would require a separate set of accounts in the Hong Kong and Shanghai Bank, so that its official business was approp riately segregated from its commercial business, which would in itself be a fairly long step in the right direction. It may even be the case that current and prospective uncertainties are such that the Hong Kong Bank would not find suggestions of this sort wholly unpalatable. It is a long time ago, but the Bank of England itself was once a commercial bank!
9. The burden of my observations on this paper, therefore, is that there might be a case for suggesting that the Bank of England should offer further advice on whether it is technically feasible to create conditions in which a central monetary authority comes to be seen as an obvious and hopefully not very contentious development. If so, what are the steps towards this objective which they would suggest: what needs to be done, and, perhaps, when. You might be inclined to suggest that from your end of the telescope such an evolutionary approach, if it were technically feasible, would have much to commend it in Hong Kong's particular circumstances.
/10.
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