6
the nature of the Hong Kong banking scene, where the local (Chinese owned and managed) banks tend to be heavily under-lent*, having therefore substantial excess HK$s available to lend inter-bank, or to put into foreign currency on a covered swap. The overseas banks in Hong Kong, on the other hand, tend to be short of HK$ deposits, but are in a position (through their head offices or other branches) to borrow US$, which can then be sold or swapped into HK$. The Hongkong and Shanghai Bank and Chartered Bank both have very substantial HK$ deposit bases, but both also have substantial foreign currency positions which can be repatriated to Hong Kong when required.
The banking system holds no Government debt, so the Government has no leverage that way. Numerous attempts have been made to devise some other way of influencing the different elements of banks' balance sheets, including the size and composition of their un-lent assets, but all attempts have been negated by the twin factors of an absence of Government debt, and a totally open economy (no exchange control, over 70 overseas banks in Hong Kong and an internationally-oriented industrial/trade sector).
4 Foreign Currency Notes
There is no way of controlling the circulation of these, in the absence of some form of exchange control. Their volume is probably not at present such as to be economically significant, but it could become so given any restrictions on the supply of HK$ notes.
*Recent economic problems may have driven these banks to run down slightly their un-lent assets; but they are generally very conservative. Liability management is not a common feature of Chinese banks.