CONFIDENTIAL
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Arguments against greater disclosure
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secret.
The principal reason for not disclosing the size of the Fund has been that such disclosure might undermine the Government's capability of maintaining stability of the exchange rate,
More specifically, there is first the so called "poker game" argument.
The chance of winning is. greater if the amount of chips at one's disposal is kept Secondly, although the size of the Exchange Fund is large, it may not be seen to be adequate to some, for example, those wishing (mistakenly) to compare it with the size of the Hong Kong dollar deposit base. Thirdly, and this is perhaps of greater significance, what are normal transactions in central banking terms could well lead to substantial fluctuations in whatever figures are published, to the extent of causing public anxiety on monetary and reserve management in Hong Kong generally, and on currency stability in particular. Fourthly, greater disclosure may generate further demands for it,
possibly hampering the effectiveness of Exchange Fund operations. It may invite unhelpful debate about the use of the Fund and could inhibit future use for such purposes as bank rescues,
Analysis
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persuasive:
role.
The arguments for greater disclosure are clearly
arguments against seem to be rather more. superficial, although in the money and foreign exchange markets psychology plays a disproportionately significant- On this particular matter, however, the psychology_
likely to, work to the advantage of the overall public interest. Confidence on monetary management in Hong Kong has been good, brought about by sensible reform measures introduced in the past four years. Greater disclosure on the Exchange Fund is likely to consolidate that confidence rather than adversely affecting it.
can, and is
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Given his extensive powers, the Financial Secretary ought to be seen to be suitably accountable, It: is much better that the Government takes the initiative to bring this about rather than being forced into it. This way, the Government probably has a greater choice of what to disclose and how to do so in a way which would not lead to the Financial Secretary's powers being fettered or risk creating public anxiety.
CONEITENTIAL
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