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MDHIAN 2457
INTERBANK INTEREST RATES ONLY INDIRECTLY, THROUGH INFLUENCING THE AVAILABILITY OF INTERBANK LIQUIDITY. BUT EXPERIENCE IN THE PAST FEW YEARS INDICATES THAT HKG'S ACTIONS TO INFLUENCE THE AVAILABILITY OF INTERBANK LIQUIDITY CAN BE FRUSTRATED BY MARKET MANIPULATION BY ONE OR OTHER OF THE LARGE PLAYERS IF THEY SO WISH, TO THE EXTENT THAT THE NECESSARY RESPONSE IN INTERBANK INTEREST RATES TO HKG'S ACTIONS MAY NOT BE FORTHCOMING OR MAY BE CONSIDERABLY DELAYED. LAF WOULD RESOLVE THIS.
SECONDLY, HKG FEELS THAT THERE IS A NEED TO UPHOLD A HIGH LEVEL OF INTEGRITY IN THE HONG KONG DOLLAR INTERBANK MARKET. THIS IS VERY IMPORTANT FOR HONG KONG'S CONTINUED DEVELOPMENT AS AN INTERNATIONAL FINANCIAL CENTRE. INTERNATIONAL BANKS MUST BE SATISFIED THAT THERE IS A LEVEL PLAYING FIELD IN THE HONG KONG DOLLAR INTERBANK MARKET AND THAT THE MARKET IS NOT SUBJECT TO THE POSSIBILITY OF UNFAIR MANIPULATION IF THEY ARE TO CONTINUE TO EXPAND THEIR BUSINESS IN HONG KONG. THE CURRENT PERCEPTION OF SOME MARKET PARTICIPANTS IS THAT LIQUIDITY MANAGEMENT CAN BE QUITE A DIFFICULT AND COSTLY TASK, AND THAT THE BIG PLAYERS HAVE A UNFAIR ADVANTAGE, BE THIS AS IT MAY, THE INTERBANK MARKET MUST BE EFFECTIVE IN CHANNELLING LIQUIDITY FAIRLY FROM THOSE BANKS WHO HAVE A SURPLUS IN IT TO THOSE WHO ARE IN NEED. LAF WOULD ACHIEVE THIS. UNQUOTE.
2. THE CONSULTATION PAPER REFERRED TO IN PARA. 1 OF THE PAPER IS BEING SENT TO YOU AND PEKING VIA CONFIDENTIAL FASCIMILE.
3.
OLIVER PAGE OF THE BANK OF ENGLAND BRIEFLY DISCUSSED LAF WITH JOSEPH YAM TODAY. THE BANK'S VIEW IS THAT LAF IS A WORKABLE PROPOSAL AND COULD PROVE A USEFUL ADDITION TO THE POLICY ARMOURY. AS THE BANK DOES NOT SEEM TO HAVE ANY FUNDAMENTAL PROBLEMS WITH THE PROPOSAL, WE SHOULD BE GRATEFUL TO KNOW IF YOU ARE NOW CONTENT FOR THE PAPER TO BE HANDED OVER TO THE CHINESE BEFORE THE MEETING.
WILSON
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