CONFIDENTIAL
016675
MDLIAN 3622
THEN. THE LIMIT WAS AGAIN RAISED IN MARCH 1987, TO THE PRESENT LEVEL OF HKD 50 BILLION. ONE ADDITIONAL REASON FOR RAISING THE BORROWING LIMIT IN 1987 WHICH WAS NOT USED IN PUBLIC PRESENTATION, IS THAT THERE IS OFTEN A NEED FOR THE EXCHANGE FUND TO BORROW FOR MONETARY POLICY REASONS FROM SOURCES OTHER THAN THE GENERAL REVENUE, AS EXPLAINED IN GREATER DETAIL IN PARAGRAPH 4 OF OUR TELNO 312 OF 26 JANUARY 1987. ALTHOUGH SUCH BORROWINGS ARE ON AN UNSECURED BASIS, OUR OPERATIONS HAVE NOT TAKEN US BEYOND THE BORROWING LIMIT.
6. THE AGGREGATE AMOUNT OF MONEY TRANSFERRED FROM THE GENERAL REVENUE NOW STANDS AT HKD 42 BILLION. THERE IS CURRENTLY ANOTHER HKD 12 BILLION THAT CAN AND SHOULD BE TRANSFERRED IF FISCAL
RESERVES ARE TO BE PROPERLY MANAGED BY TAKING THEM INTO THE EXCHANGE FUND. THERE WILL BE MORE IN THE NEXT FINANCIAL YEAR AS THE ACCUMULATED FISCAL RESERVE IS EXPECTED TO EXCEED HKD 70 BILLION
AT THE END OF 1989-90. THERE IS NO OUTSTANDING BORROWING ARISING FROM MONETARY POLICY OPERATIONS. BUT THE ISSUE OF EXCHANGE FUND BILLS, NOW BEING DEVELOPED, WILL AMOUNT TO A BORROWING (UNSECURED) FOR THE ACCOUNT OF THE EXCHANGE FUND.
REVIEW
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7. THIS HAS LED US TO FOCUS ON THE EXACT MEANING OF SECTION 3(3) OF THE EFO, SPECIFICALLY THE PHRASE ''BORROW. .ON THE SECURITY OF ANY ASSET HELD BY THE FUND OR ON THE GENERAL REVENUE''. THE
QUESTION WAS WHETHER THE GENERAL REVENUE IS AVAILABLE AS SECURITY OR A POOL OF 'BORROWING OR BOTH. THE ATTORNEY GENERAL'S CHAMBERS (AGC) HAVE BEEN ASKED TO REVIEW THIS AND THE ADVICE WE HAVE RECEIVED RUNS LIKE THIS. SUBSECTION 3(3) REFERS EXPRESSLY TO'' FUND.
I f AND IT IS CLEAR THAT IT DOES NOT REFER TO THE FUND AS A SOURCE OF BORROWING. THE WORDS .....OR ON THE GENERAL REVENUE'' OFFER AN ALTERNATIVE TO THE ASSETS OF THE FUND. AS THE LATTER ARE
CLEARLY RELEVANT IN THIS CONTEXT INSOFAR AS THEY ARE AVAILABLE
AS SECURITY, THE REFERENCE TO THE GENERAL REVENUE ALSO IS AS SECURITY AND NOT AS A POOL OF ''BORROWING''.
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.BORROWING ON THE SECURITY OF ANY ASSET HELD BY THE
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8. IN AN ATTEMPT FURTHER TO CLARIFY THE ISSUE, WE RESEARCHED INTO THE LEGISLATIVE HISTORY OF SECTION 3(3) OF THE EFO BACK TO 1971 WHEN IT WAS INTRODUCED IN ITS PRESENT FORM, AND TO ITS PREDECESSOR, SECTION 6(3) OF THE CURRENCY ORDINANCE CORDINANCE NO 54 OF 1935). THE RELEVANT PART OF THE 1935 ORDINANCE STATED THAT ''THE TREASURER MAY BORROW FOR THE ACCOUNT OF THE FUND EITHER IN HONG KONG OR ELSEWHERE ON THE SECURITY OF ANY ASSET HELD BY THE FUND OR OF
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CONFIDENTIAL