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8. THE RATES OF EXCHANGE WHICH A BANK CUSTOMER WILL OBTAIN,
WHETHER EXCHANGING BANK NOTES OR MAKING ANY OTHER FOREIGN
CURRENCY TRANSACTIONS, WILL CONTINUE TO BE DETERMINED BY MARKET
FORCES, BUT WILL IN PRACTICE BE CLOSE TO THE FIXED RATE OF HK
DOLLARS X.XX EQUALS US DOLLARS 1. THIS WILL BE THE CASE BECAUSE FROM
NEXT MONDAY MARKET FORCES WILL OPERATE AGAINST THE BACKGROUND OF THE
FIXED RATE FOR CERTIFICATES OF INDEBTEDNESS. I MUST EMPHASISE
THAT THESE NEW ARRANGEMENTS WILL MEAN BUSINESS AS USUAL BETWEEN
BANKS AND THEIR CUSTOMERS AT STABILISED RATES.
9. YOU WILL ASK ABOUT THE IMPLICATIONS FOR THE ECONOMY OF
STABILISING THE EXCHANGE RATE IN THIS WAY. IN THE SHORT TERM THERE
MAY BE SOME UPWARD PRESSURES ON HONG KONG DOLLAR INTEREST RATES.
ONCE THE STABILITY OF THE EXCHANGE RATE BECOMES EVIDENT AND
ACCEPTED, INTEREST RATES SHOULD FALL BELOW PRESENT LEVELS. LOOKING
FURTHER AHEAD CHANGES IN THE EXCHANGE RATE WILL NO LONGER BE AN
ELEMENT IN OUR ECONOMY'S ADJUSTMENT PROCESS. FACTORS SUCH AS
INTEREST RATES AND MONEY SUPPLY WILL ADJUST TO BALANCE OF PAYMENTS
PRESSSURES AUTOMATICALLY WITHOUT GOVERNMENT INTERVENTION.
10. THE GOVERNMENT BELIVES THAT THIS NEW ARRANGEMENT MUST
NOW BE PREFERRED TO THE FREELY FLOATING EXCHANGE RATE SYSTEM.
WE CANNOT RUN THE RISK OF FURTHER SPIRALLING DEPRECIATION, WITH THE
RAMPANT INFLATION AND DISTRESS WHICH THAT WOULD BRING TO ALL
OUR COMMUNITY. A RETURN OF CONFIDENCE IN OUR CURRENCY IS ESSENTIAL.
11. I SAID THAT I HAD TWO MEASURES TO ANNOUNCE. THE SECOND IS
THIS. AS FROM MONDAY 17 OCTOBER INTEREST ON HONG KONG DOLLAR
DEPOSITS WITH FINANCIAL INSTITUTIONS WILL NO LONGER BE TAXED.
THIS MEANS THAT THERE WILL NO LONGR BE A TAX ADVANTAGE IN HOLDING
FOREIGN CURRENCY DEPOSITS OR IN HOLDING HONG KONG DOLLAR DEPOSITS
OFFSHORE.
12. AS I SAID LAST MONTH, THE GOVERNMENT IS WORRIED ABOUT
POSSIBLE SERIOUS EROSION OF PROFITS TAX REVENUE ARISING FROM THE
REMOVAL OF INTEREST TAX. WE ARE STILL STUDYING THIS COMPLEX ISSUE.
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