CONFIDENTIAL
THE MONETARY SYSTEM OF HONG KONG
Seah
2115
A number of factors have led to Hong Kong becoming the third largest financial centre in the world. These include the consistency of its policies, the integrity of the administration of justice and the stability of its government. These factors have provided inspiration for international investors and experienced professionals in general. A large number of banks, deposit-taking companies (DTCS), insurance companies, attracted by Hong Kong's economic, legal and social environment, have chosen to base themselves there. However, the international and mobile nature of the majority of these companies would make it comparatively easy for Hong Kong to cease being a financial centre if, for some reason, the confidence that they share in the territory were to fail.
International companies operate in or transact business through Hong Kong because they know that the government does not interfere in business, which operates free of external control and which has a clearly defined British based legal framework. The Government makes no attempt to fix the Hong Kong dollar by reference to any other currency. The association with sterling finished in 1972, since when the Hong Kong dollar has been a fully independent floating
currency.
The Hong Kong Government Exchange Fund, established in 1935, holds most of the Government's financial assets. The British Government is not involved in the management of the Fund and does not receive any benefit from it. The Exchange Fund operates by buying and selling Hong Kong dollars against other currencies consequently it has some influence over the exchange rate although, as seen in the last twelve months, not ultimate control.
There are four stock exchanges in Hong Kong which are to be amalgamated, as well as thriving commodities and gold markets.
CONFIDENTIAL