CHAPTER 3: THE FINANCIAL SECTOR
Introduction
3.1
In the third quarter, nervousness
about the
future of Hong Kong, along with the renewed strength of
the US dollar, continued to depress the exchange value of
the Hong Kong dollar. This weakness was clearly
unjustified in terms of the current strength of the
economy. The extent of depreciation during the middle of
September was particularly sharp. But on announcement by
the Government that it was considering a substantial
revision to the mechanism for issuing and redeeming
Certificates of Indebtedness to the note-issuing banks,
which would mean that the Exchange Fund would assume a
more significant role in the exchange rate determination
mechanism, the exchange rate
(1) stabilized
Bank
deposit rates were altered on a number of occasions during
the third quarter in the light of exchange rate
developments.
•
3.2
During the quarter, one more licensed bank began
operating. There were 135 licensed banks at the end of
September, of which 2 were yet to begin operating. On 27
September, to avoid an unstable situation developing in
/ the
(1) Subsequently, on 15 October 1983, the Government announced the adoption of two measures to stabilise the exchange rate of the Hong Kong dollar. First, in issuing new Hong Kong dollar notes, the note-issuing banks are required to deposit an equivalent amount of US dollars, at a specified exchange rate of HK$7.80 = US$1, with the Exchange Fund in exchange for Certificates of Indebtedness; when the Certificates of Indebtedness are redeemed, the Exchange Fund will pay out US dollars at that same rate. Second, with effect from 17 October 1983, the 10% interest withholding tax on Hong Kong dollar deposits with financial institutions was removed.
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