G.F. 326
CONFIDENTIAL #
- 5
9.
Between
end-February
and
end-July
foreign
customers with banks
and
currency deposits of
deposit-taking companies in Hong Kong increased by 135%,
from HK$32.5 billion to HK$76.3 billion, while Hong Kong
dollar deposits of customers went down by 4%, from
HK$134.5 billion to HK$129.4 billion.
10.
It is difficult to tell precisely how much of
these changes is attributable
attributable to varying
to varying factors, but it
seems likely that the major part of the increase in
foreign currency deposits represented a net addition to
deposits with Hong Kong institutions as foreign currency
deposits were moved in from other centres, motivated by
the tax change. At
same time, largely reflecting the
tax change, the after-tax interest differential between
US$ and HK$ moved by about 2% in favour of the US$ between
end-February and end-July, which suggests that some
switching out of HK$ must also have taken place. Finally,
it is likely that there would have been some natural
growth in foreign currency deposits even if there had been
no tax change.
11.
Thus
business that was at least partly being
carried on outside Hong Kong is now being transacted
entirely within Hong Kong and the foreign currency deposit
base of the monetary sector has been strengthened.
Although on the face of it a degree of switching from Hong
Kong dollar deposits to foreign currency deposits puts
CONFIDENTIAL #