CONFIDENTIAL
9
EXCHANGE FUND BORROWING LIMIT
16.
The bulk of the Government's fiscal reserves are transferred to the Exchange Fund against the issue by the Fund of interest-bearing debt certificates. Section 3(4) of the Exchange Fund Ordinance limits the amount which the Fund may borrow from any sources, but under section 3(5) this limit may be altered by the Legislative Council by resolution with the approval of the Secretary of State.
17.
In anticipation of the build up of fiscal reserves in 1987-88 and in subsequent years, the borrowing limit was increased on 11 March 1987 from HK$30 billion to HK$50 billion. At that time the amount of fiscal reserves transferred to the Exchange Fund and other borrowings had already reached HK$29.8 billion. The increase also enabled the Exchange Fund to acquire the necessary Hong Kong dollar funds, through borrowing from banks as well as from the General Revenue, for the purpose of exchange market intervention.
MONEY MARKET OPERATIONS
18.
Money market operations in 1987 to assist in the adjustment process under the linked exchange rate system when there were temporary but significant deviations in the exchange rate from 7.80 were minimal. Such operations involved borrowing from the money market to tighten interest rates, and were conducted in the third quarter of the year. Interest paid in this regard amounted $0.2 million (Interest income in 1986: $1.0 million).
CONFIDENTIAL