FINANCIAL STRUCTURE
35
the returns of the Royal Hong Kong Jockey Club who hold the monopoly for conducting such operations. The estimated yield for the year ended March 31, 1973 is $50.5 million.
Hotel Accommodation Tax is imposed on hotel and guest house accommodation and is levied at the rate of two per cent on the accommodation charges. For the financial year 1972-3 this levy is estimated to yield $4.8 million.
Every business operating in Hong Kong, except those not for the purpose of gain or those carried on by a charitable institution, must be registered and pay an annual registration fee of $25. Exemption is granted when the business is very small. The income from these fees for the year ended March 31, 1973 is expected to be $4.8 million.
Currency
In the absence of a central bank, Hong Kong's currency notes are issued by three commercial banks, the Hongkong and Shanghai Banking Corporation, the Chartered Bank and the Mercantile Bank Limited. Coins of one dollar, 50 cents, 10 cents and five cents and notes of one cent denomination are issued by the government. The total currency in nominal circulation at December 31, 1972 was:
Bank note issue
Government $1 coin issue Subsidiary coin
...
Government 1 cent note issue
•
+
...
***
***
$3,150,625,000 $ 127,924,625 $ 99,045,559
$
596,240
The value of the currency issued by the note-issuing banks is regulated by an Exchange Fund, which was set up in 1935 when the Hong Kong dollar ceased to be based on silver. Briefly, the Fund receives sterling from these banks in exchange for Certificates of Indebtedness denominated in Hong Kong dollars. These certificates, which are non-interest-bearing and are issued and redeemed at the discretion of the Financial Secretary, provide the legal backing for the notes issued by the banks, apart from their small 'fiduciary' issues these are limited to a total of $95 million and are issued against securities, of a kind approved by the Secretary of State, which are held by the banks and deposited with the Crown Agents in London. The Fund's resources are invested in a variety of securities, both long and short-term, denominated in sterling and other currencies. Out of the income derived, the Fund bears the cost of the note issue except for a small proportion, equivalent to the proportion borne by the 'fiduciary' issues to the total note issue, which is met by the note-issuing banks. In practice, from 1937 to 1968, the Exchange Fund operated in a similar manner to traditional Colonial Currency Boards.
The exchange value of the Hong Kong dollar was established in 1935 at approxi- mately 1s 3d. On the setting up of the International Monetary Fund after World War II, the Hong Kong dollar was given its own gold parity at a rate reflecting this relationship. The relationship with sterling was, however, not a statutory one, and was established and maintained by the operations of the Exchange Fund in conjunc- tion with the note-issuing banks. Nevertheless, it came to be generally regarded as a fixed relationship, particularly since Hong Kong, as both a dependent territory and