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money supply? I suspect that the answer is no; though I must confess that I do not understand why Hong Kong has been, up to now, comparatively immune from the massive flows of funds which have so i plagued the financial centres. I have to keep my fingers crossed.
There is also the proposition that an internally generated increase in the money supply through the banking system is not possible. might have thought that the recent experience with the stock-exchange bubble would have cast doubt on this proposition.. The bubble is already being dismissed as something of a sport: the,banks were over- liquid at the relevant time, and of course seized the opportunities for expanding their advances when opportunity offered. Now liquidity is said to be tight partly because the banks have not (very prudently) been calling in their advances for fear of sparking off a further decline in stock-exchange prices. Perhaps it is true, as was suggested to me, "that the banks have learned their lesson" and that nothing like this will ever happen again. But it is at least possible to wonder whether the wilder excesses of the stock exchange boom would have been tolerated if some mechanisms for controlling the supply of credit had been in place and used; and possible, also, to wonder whether any subsequent tightness of credit for more normal purposes was ¡ necessarily in the interests of the economy.
10. Finally, it has to be borne in mind that for all the faith in automatic mechanisms, the Government can and inevitably does exercise a major influence on the monetary scene. There is nothing automatic about the budget surplus; nor is there anything automatic about whether the surplus is deployed internally through the banking system or placed externally. Nor is there anything automatic about decisions on when and how to support the exchange rate. Interest rates are not wholly immune from Government influence. There was even a glimpse of wider horizons in the Financial Secretary's last Budget speech. Having alluded to the very large increase in the money supply in the previous year (44%) he said: "In the course of the coming year I
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