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may be offset by increases in residents' deposits. Changes in bank deposits in any case (only one of the definitions of 'capital flight' offered in paragraph 10 above.
16.
The 'Economic Background' to the 1982 Budget used a 'decrease in net foreign currency assets' as an indication of 'a net outflow of foreign currency' from the monetary sector. A footnote described a transaction allowing this interpretation, with a resident wishing
to invest abroad purchasing foreign currency from the HK monetary system (reducing its foreign currency assets) with HK$. Various problems with this identification should be mentioned:
a) as long as foreign banks are willing to increase their
holdings of HK$, there is no necessity for the HK
financial system to provide foreign currency;
b) the HK monetary system is in any case not a totally passive
element in the argument: it can itself decide on its desired foreign currency holdings within total assets;
c) if the HK government is attempting to moderate a decline
in the external value of the currency, it may itself
ultimately provide the foreign currency demanded, from its
own reserves.
17.
During 1981 the net foreign currency asset position of banks
and DTCs declined from HKS 12.4 billion to HK$ 7.6 billion an
'outflow' of almost HK$ 5 billion. In the 1983 'Economic Background',
talk of 'inflows' and 'outflows' was entirely absent, perhaps because
the monetary sector at the end of 1982 had shifted to a net foreign
currency liability position of HK$ 19 billion a fall in net foreign currency assets of some HK$ 27 billion! It is noted that foreign currency exposure remained fairly constant as the result of an increase in forward foreign currency assets.
an
18. This net foreign currency asset' measure suffers from/element
of double-counting since Hong Kong money market positions are not
netted out (ie liabilities of banks and DTCs to each other are
included). Thus these changes cannot be identified within the flow
of funds framework where banks and DTCs are consolidated within column
4.
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/D. Conclusions