• 02-NOV-1993 09:40
HKMA
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Monetarism which unfortunately has been proved unworkable empirically.)
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Mr. Chen Yuan, Deputy Governor of the People's Bank of China, presented a paper on recent developments in the China financial system and monetary relations between China and Hong Kong. He said that recent stabilization measures had scored some success in cooling down the overheated economy. Major reforms in the financial sector are also being planned. An important step was the establishment of banks to take over policy-based lending from commercial banks. The existing specialized banks would be transformed into commercial banks with operational autonomy and would be responsible for their own profits and losses. The money market would be unified throughout the country, and the bills and securities markets would be improved. The fiscal deficit would be financed through treasury bonds rather than by central bank credit. X A power central banking system would be established. Maintaining the stability of RMB would be a cardinal objective of monetary policy. Major changes in the central banking, commercial banking, bills of exchange and insurance laws are envisaged.
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On the relationship between mainland China and Hong Kong, Mr. Chen stressed that after 1997, the SAR government would administer Hong Kong's financial affairs independently. He said "The People's Bank of China will, under new historical circumstances, further strengthen and develop our links and cooperation with the monetary authority under the government of the special administrative region, and will not take the place of the Hong Kong Monetary Authority.' Mr. Chen also remarked that the linked exchange rate system had played a positive role in the maintenance of Hong Kong's economic and financial stability and prosperity.
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The Chairman and Chief Executive of the Hongkong and Shanghai Banking Corporation, Mr. John Gray, clarified the role of the HongkongBank in monetary management. The Bank was not, and indeed never had been, a central bank. Its role in monetary management was diminishing. The handing over of the role as the lender of last resort to the Exchange Fund had relieved HongkongBank from a serious conflict between that role and its role as a commercial bank. The Bank now operates as a technician for HKMA, helping it to put monetary policy into effect.
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Mr. Gray commented that the advertising benefit of issuing bank notes was not without cost, as the spread between the linked rate and the market rate might be unfavourable to the note-issuing banks. Should the market rate stay at the strong side of the link, note-issuing banks would incur a loss in bank note redemption. Mr. Gray also expressed concern over too much HKD circulating in Southern China. Though it did not seem to have much impact on Hong Kong's ability to manage its monetary policy