CONFIDENTIAL
THE MONETARY SYSTEM OF HONG KONG
1. A number of factors have led to Hong Kong becoming one of the
world's leading financial centres. 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 mean that Hong Kong would
cease to be a financial centre if, for some reason, the confidence
that they share in the territory were to fail. Absence of exchange
controls and confidence that they would not be introduced have been
particularly important.
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2. 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 have
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 ended in 1972.
1974 the Hong Kong dollar has been a fully independent floating
currency.
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3. 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 can intervene in
the foreign exchange markets to smooth movements in the exchange
rate, but it cannot fix the rate at any particular level.
4. There are four stock exchanges in Hong Kong which are to be
amalgamated, as well as thriving commodities and gold markets.
CONFIDENTIAL
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