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FINANCIAL STRUCTURE
taxation of corporate profits, the treatment of interest and the relief for interest paid, the taxation of benefits in kind, and the taxation of specific classes of taxpayer. The committee's report was due to be made public early in 1977.
Currency
Hong Kong has no central bank. Bank notes are issued by three commercial banks the Hongkong and Shanghai Banking Corporation, the Chartered Bank and the Mercantile Bank. Currency notes of one cent denomination are issued by the government, as are coins of five dollars, two dollars, one dollar, 50 cents, 20 cents, 10 cents and five cents. A $1,000 gold coin was issued in 1975 to commemorate Her Majesty the Queen's visit and the first of a series of $1,000 gold coins to com- memorate the Chinese Lunar New Year was issued early in 1976. The total currency in nominal circulation at the end of 1976 and details of its constitution are shown in Appendix 11. –
The value of currency issued by the note-issuing banks is backed by an Exchange Fund, which was set up in 1935 when the Hong Kong dollar ceased to be based on silver. The fund receives payment in Hong Kong dollars from these banks in exchange for certificates of indebtedness. These certificates are non-interest bearing and are issued and redeemed as the value of notes in circulation rises and falls. They provide the legal backing for the notes issued by the banks-apart from their small 'fiduciary' issues which are limited to a total of $95 million and are issued against securities, of a kind approved by the Secretary of State, which are deposited to the order of the Hong Kong Government. The Exchange Fund's resources are employed in a variety of investments, both long and short term, denominated in several currencies. Out of the income derived, the fund bears the cost of the note issue except for a small propor- tion, equivalent to the proportion of the 'fiduciary' issues to the total note issue, which is met by the note-issuing banks.
As from April 1, 1976, the bulk of the foreign currency assets of the General Account and all the assets of the Coinage Security Fund were transferred to the Exchange Fund against the issue of debt certificates denominated in Hong Kong dollars bearing interest at appropriate market rates. This means that all losses and gains resulting from changes in the Hong Kong dollar value of official foreign assets will accrue to the Exchange Fund, which was designed for the purpose of regulating the exchange value of the currency of Hong Kong. Consequently, the general revenue balance in the government's statement of assets and liabilities will normally only reflect the difference between the government's cash receipts and payments. The state- ment of assets and liabilities is published annually in the report of the Director of Accounting Services.
The exchange value of the Hong Kong dollar was established in 1935 at about 1s 3d sterling ($16 to £1). 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. It weakened after the devaluation of the pound in