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was linked to the US instead of to sterling, and Certificates of Indebtedness were henceforth issued against payment in Hong Kong in HK S. Since November 1974 the HK has floated freely, and the volume of capital flows, in and out, has increased very substantially, as has the number of financial institutions and the depth of the local foreign exchange market.
5. The issue of bank-notes is thus now demand-led. The note issuing banks respond to changes in the public's demand for notes*, paying the EF a market rate of interest on the HK counterpart of CIs issued by the EF. The EF issues or cancels CIs in response to the requests of the note-issuing banks. While the Exchange Fund Ordinance would permit the Government to refuse to issue a CI on request, that power is not exercised.
HK Coins
6.
Coins are a direct obligation of the Hong Kong Government: they are sold to the public, through the banking system, by the Hongkong and Shanghai Bank, operating as the Government's agent, with no need for the Certificate of Indebtedness mechanism. The issue and withdrawal of coins is again demand-led, with the only restraining factor on the Government's side being an occasional supply/storage problem.
Banks' Clearing Accounts
7. The Bankers' Clearing House is operated by the Hong Kong Association of Banks (to which all licensed banks in Hong Kong belong). All banks are required to hold a current account, denominated in HK %, to handle their clearing payments/receipts, either with the Hongkong and Shanghai Bank, or with a "settlement bank" which maintains a clearing account with the Hongkong and Shanghai Bank on behalf of a number of banks.
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*There is a very strong seasonal pattern in the note circulations, with
the peak demand in the week before Chinese New Year running at up to 30% above the low point of the previous 12 months.