02-NOV-1993
09:42
HKMA
+ 853 878 8130 P.06
5
chosen broadly stable anchors and the criterion of flexibility had clearly been met in Hong Kong.
14
KA Jannel Van
surveyed monetary developments in Hong Kong. He pointed out that Hong Kong had been diligently observing the three widely accepted principles in respect of the objective of monetary policy. First, stability of the currency was made the prime objective. Second, the objective was clearly defined and consistently adhered to. Third, multiple objectives were avoided. He commented that stability in the external value of the Hong Kong dollar against the US dollar, which was a low inflation currency, helped to bring price stability in Hong Kong's tradable goods sector.
17.
Mr. Yam explained that on top of the monetary rule which governed the issue and redemption of bank notes at a fixed rate of HK$7.80 to US$1, a mechanism for discretionary monetary management had been built up through the introduction of monetary reform measures, including the Accounting Arrangements in 1988, the Exchange Fund Bills Programme in 1990 and the Liquidity Adjustment Facility in 1992. The coexistence of the monetary rule and the mechanism for discretionary management was feasible because they shared the same objective - ensuring exchange rate stability. There was discretion only in monetary operations, but not in monetary policy objective. Besides, the scope for political interference in Hong Kong's monetary management was minimal. HKMA was not the banker to the government and so there is little danger of fiscal deficits being financed by money creation. Monetary stability and in particular exchange rate stability was crucial in this epoch of political and economic transition. It was only prudent to build up the monetary armory to protect the link.
18.
Mr. Yam also welcomed considered views on a technical issue- the pass-on arrangement in the note-issue mechanism. This involved the note-issuing banks "passing- on" or extending the 7.80 rate to the purchase and sale of bank notes for US dollars amongst licensed banks, leading recently to banks imposing handling charges in respect of large deposits of bank notes received from customers. One possible solution was the exchange of notes between banks for Hong Kong dollar value instead. However, he made it clear that the final decision should be reached by the note-issuing banks themselves. On the Exchange Fund Bills and Notes Programme, Mr. Yam said it would be extended to three-year Notes. The Chinese side had agreed that the programme would be run on a continuing basis even if repayment was after 1 July 1997.
19.
The final Panel discussion session on Monetary Management: Theory and Practice, was moderated by Mr. Anthony Latter. Mr. John Greenwood, Chairman of GT Management (Asia) Ltd., distinguished between the linked exchange rate system in Hong