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6. THE CIRCUMSTANCES OF HONG KONG PRECLUDE EXCHANGE CONTROL. AFTER A THOROUGH EXAMINATION OF REALISTIC OPTIONS, WE HAVE NOW DECIDED TO ALTER THE FRAMEWORK WITH:IN WHICH THE EXCHANGE RATE S DETERMINED. WHTH EFFECT FROM MONDAY 17 OCTOBER, THE TWO NOTE-ISSUING BANKS WILL PAY THE GOVERNMENT'S EXCHANGE FUND FOR ADD-IT-HONAL CERTIFICATES OF INDEBTEDNESS, WHICH THEY ARE REQUIRED TO HOLD AS BACKING FOR ANY INCREASE IN THEIR NOTR ISSUES, IN FOREIGN EXCHANGE AT A FIXED RATE OF HK DOLLARS X.XX EQUALS US DOLLARS 1.
7. FROM THE SAME DATE, WHEN NOTES ARE WITHDRAWN FROM CIRCULATION AND THE NOTE-KSSUING BANKS SURRENDER CERTIFICATES OF INDEBTEDNESS THE EXCHANGE FUND WILL PAY THEM THE EQUIVALENT FOREIGN EXCHANGE AT THE SAME FIXED RATE. IT IS OUR INTENTION TO HOLD HTHIS RATE UNCHANGED.
6. 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 HAN 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. MUST EMPHASISE
THAT THESE NEW ARRNGEMENTS WILL MEAN BUSINESS AS USUAL BETWEEN BANKS AND THEIR CUSTOMERS AT STABILISED RATES.
9. YOU WILL ASK ABOUT THE IMPLICATHONS 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 AN OUR ECONOMY'S ADJUSTMENT PROCESS. FACTORS SUCH AS INTEREST RATES AND MONEY SUPPLY WILL ADJUST TO BALANCE OF PAYMENTS PRESSURES AUTOMATICALLY WITHOUT GOVERNMENT INTERVENTION.
10. THE GOVERNMENT BELIEVES 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 U ESSENTIAL.
11. I SAID THAT HAD TWO MEASURES TO ANNOUNCE. THE SECOND IS
THIS. AS FROM MONDAY 17 OCTOBER INTEREST ON HONG KONG DJOLLAR
DEPOSITS WITH FINANCIAL INSTITUTIONS WILL NO LONGER BE TAXED.
THIS MEANS THAT THERE WILL NO LONGER BE A TAX ADVANTAGE IN HOLDING
FOREIGN CURRENCY DEPOSITS OR IN HOLDING HONG KONG DOLLAR DEPOSITS OFFSHORE.
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/12. AS I SAID