G•
revenue obtainer (from increases in the
money supply)*.
Reasons for this recommendation are generously sprinkled through the report, but particularly in paragraph 3.51.
(ii) Further refinements to monetary policy would be to have a variable reserve ratio, rediscounting arrangements and open market activites (once there is a central bank).
(iii) Domestic liquid assets should form the
! reserve money'
GOVERNMENT POLICY TOWARDS THE BANKING AND FINANCIAL SECTOR
It
9.
C.
The existing (196) Banking Ordinance was designed for a system that was part of the Sterling Exchange Area. badly needs to be reformed now that Hong Kong has an independent monetary system along with the setting up of a central bank. (Reading Chapter 5 as an economist one is struck by the impression that the World Bank team were highly suspicious of the relationship between HKG and HKB; nowhere do they explicitly accuse HKG of giving UKB a licensed monopoly and colluding with the latter's efforts to retain its monopoly position, but a cloud of doubt is definitely raised particularly in paragraph 5.16 which everyone should read and in paragraphs5.15, 5.20, 5.27-5.29 and 5.33.) The Banking sector is very uncompetitive due to a cartel called the Exchange Banks Association, which has promoted the growth of finance companies over whom there is little control. The amount of published information on banking activities has declined since 1974.
10. R. (i) Set up a central bank with functions a) to g),
and particularly c) and e) of R (i) in Monetary Policy at the same time as, or before, the following recommendations:
(ii)
End the moratorium on new bank licenses and establish new forms of bank licenses.
(iii)
To achieve a) without b) is impossible and is made much easier by d) (since the Central Bank will have bigger assets as public sector deposits are transferred from commercial banks to it) f) and g); and b) usually requires c); e) is not an absolutely essential function of a central bank but it is most easily and sensible carried out by one while pursuing b), c), d), f) and g) and is particularly desirable in view of the recommendations in paragraph 10. 5) is not insignificant - with a simple 10% reserve ratio since mid-1972 the Government could have earned an addition- al HK 2.5 bn.; in 1976 alone it would have earned an extra HK3 0.77 bn.
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CONFIDENTIAL