CONFIDENTIAL
6
18.
It is linked exchange banknotes can
not often appreciated that under the rate system only Hong Kong dollar exchanged for US dollars (through a bank and the note-issuing banks) at the fixed rate of 7.80. Hong Kong dollar deposits with banks cannot be exchanged for US dollars at that rate unless they have been first converted into banknotes. But in doing so
the
first amount of banknotes in circulation increases, SO does the amount of US dollars held by the Exchange Fund as backing for the note issue. The Exchange Fund will always have US dollars to buy back banknotes at the fixed rate of 7.80, because it has been given the US dollars first before they are used in the buy back. Banks may be affected if there is a large withdrawal of
banknotes, but certainly not the Exchange Fund.
་
CONFIDENTIAL
P13