CONFIDENTIAL
Liquidity Adjustment Facility
HKG intends to consult the Hong Kong Association
of Banks (HKAB) and other interested parties on a proposal to introduce a Liquidity Adjustment Facility (LAF) in Hong
The proposal is described in the attached paper to The Exchange Fund Advisory
Kong.
be used for consultation.
Committee has already been consulted on a confidential
basis and has given its support.
The proposal has But public response,
regrettably been leaked to the press. particularly from the financial sector, has fortunately
been overwhelmingly favourable.
2.
The Chinese side is invited to note this HKG
receiving comments from interested
After
intention.
parties in the next month or so, HKG would finalize the of the proposal, including the necessary taking security from banks wishing to The proposal would then be implemented.
practical details
documentation for
borrow under LAP.
3-
There are
two related aspects of the proposal which, in view of domestic sensitivites, were deliberately not given prominance in the paper. These are supplemented
in this note for the information of the Chinese side.
4.
First, HKG feels
monetary operations aimed
stability would be enhanced
more direct
influence
on
that the effectiveness of
at ensuring exchange rate if it is possible to have a
interbank interest rates.
CONFIDENTIAL
P:2