11.2.87
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monetary system, and the stability and prosperity of
Hong Kong itself. This and the fact that we believe in
and practise free trade put us in a unique position.
26.
The inflow of funds into the Hong Kong dollar
resulted in an acceleration in the growth rate of the
money supply during 1986. HK$M3, for example, grew by 12%
in the second half of the year, compared with 4% in the
first half although the figure for the second half was
inflated by subscriptions to a new share issue in
December. The inflow has also resulted in a widening of
the gap between Hong Kong dollar interest rates and those
for the US dollar, making it expensive to keep idle funds
in Hong Kong dollars and inducing the necessary offsetting
outflow. In time, the acceleration in the money supply
should work through the economy resulting in increased
imports of goods and services, thus reducing or
eliminating the net inflow of funds.
27.
A higher growth rate of the money supply is
often believed to have unwelcome implications for
inflation. However, I have doubts about the strength of
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