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FINANCIAL SYSTEM AND ECONOMY
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London, Zurich and New York, rising from $2,714 per tael of 99 per cent fine gold at the end of 1981 to $3,492 at the end of 1982. (One tael is equal to 37.429 grams.)
The international gold market in Hong Kong continued to grow during the year. Dealings principally take place in US dollars per troy ounce of 99.95 per cent fine gold, with delivery in London. The price of gold loco London rose from US$400 per troy ounce at the end of 1981 to US$448 at the end of 1982.
Exchange Fund and Currency
The Hong Kong Government Exchange Fund was established by the Currency Ordinance of 1935 (later renamed the Exchange Fund Ordinance), with the stated purpose of regulating the exchange value of the Hong Kong dollar. From its inception, the fund has held the backing to the note issue, with notes being issued by the two note-issuing banks The Hongkong and Shanghai Banking Corporation and The Chartered Bank - against their holdings of certifi- cates of indebtedness. These are non-interest-bearing liabilities of the Exchange Fund, and are issued or redeemed as the value of the notes in circulation rises or falls. The role of the fund was developed further in 1976 when all the assets of the Coinage Security Fund (which held the backing for coins issued by the government) as well as the bulk of the foreign currency assets held in the government's General Revenue Account were transferred to the fund. In both cases, the transfers were made against the issue by the fund of debt certificates denominated in Hong Kong dollars. On December 31, 1978, the Coinage Security Fund was merged with the Exchange Fund and all the certificates held by the Coinage Security Fund were redeemed. The role of the Exchange Fund was expanded again in 1978 when the government began to transfer the Hong Kong dollar balances of the General Revenue Account (apart from working balances) to the Exchange Fund against the issue of interest-bearing debt certificates. Thus the bulk of the government's financial assets are now held in the Exchange Fund. To-day, the principal role of the fund is the management of these assets and, associated with that, regulation of the exchange value of the Hong Kong dollar to the extent that this is deemed desirable or necessary. Another function related to the fund is the supply of notes and coin to the banking system.
The Exchange Fund is managed by the Monetary Affairs Branch of the Government Secretariat under the direction of the Financial Secretary, who is also advised by an advisory committee which includes prominent members of the banking community. The fund's assets are held in bank deposits in Hong Kong dollars and certain foreign currencies, and in various interest-bearing instruments in foreign currencies.
Currency notes in everyday circulation are $10, $50, $100, $500 and $1,000 and may only be issued by the two note-issuing commercial banks against holdings of Exchange Fund certificates of indebtedness, apart from a very small fiduciary issue, which is backed by securities issued or guaranteed by the British or Hong Kong Governments. The Exchange Fund bears the costs of maintaining the note issue (apart from that proportion of the costs which relates to the fiduciary issue), and the net profits of the note issue accrue to the fund.
Coins of $5, $2, $1, 50 cents, 20 cents, 10 cents and five cents, and currency notes of one cent denomination, are issued by the government. In July, a new, smaller 10 cent coin was introduced, and the old one is gradually being withdrawn from circulation. The introduction of this new coin completes the modernisation of the coinage of Hong Kong which resulted from the report of the Coinage Review Committee in 1974. The seventh of a series of $1,000 gold coins minted to commemorate the Lunar New Year was issued early in the year. These gold coins are legal tender, but do not circulate. The total currency in circulation at the end of 1982, and details of its composition, are shown at Appendix 11.