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THE ECONOMY
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. When the Hong Kong dollar was pegged to sterling prior to June 1972, certificates of indebtedness were issued to and redeemed by the note-issuing banks against payment in sterling at a fixed exchange rate. From June 23, 1972, to October 15, 1983, such payments were made in Hong Kong dollars. With effect from October 17, 1983, certificates of indebtedness are now issued and redeemed against payment in US dollars at a fixed exchange rate of US$1 = HK$7.80. 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. The eighth of a series of $1,000 gold coins minted to commemorate the Lunar New Year was issued early in 1983. These gold coins are legal tender, but do not circulate. The total currency in circulation at the end of 1983, with details of its composition, is shown at Appendix 11.
Foreign Exchange, Money and other Financial Markets
Hong Kong has a mature foreign exchange market where the local currency and major international currencies are actively traded. The market's development has been an integral part of Hong Kong's emergence as a major international financial centre. The absence of any exchange controls and the fact that international banks may trade through their Hong Kong offices while other centres are closed are two factors which have stimulated the development of the foreign exchange market. Meanwhile, the continuous requirements of local industry and commerce in relation to their transactions with the rest of the world have ensured active trading of the local currency.
There is also a well developed interbank money market, where wholesale Hong Kong dollar deposits are traded among the banks and deposit-taking companies. Other short- term instruments are less in evidence than in some other centres, partly because the government is not itself active as a regulator of the monetary system's reserves through open market operations in such instruments. Thus, although some bills of exchange are held in portfolios, they are not greatly traded. Until quite recently the same has been true for certificates of deposit (CDs); but the secondary market in locally issued CDs has become more active lately, having been helped by the government's decision, effective from March 31, 1983, to allow CDs issued by licensed banks and licensed deposit-taking companies to count to a limited extent towards the statutory liquidity requirement of all banks and deposit-taking companies.
There are at present four stock exchanges in Hong Kong, namely, Far East Exchange, Hong Kong Stock Exchange, Kam Ngan Stock Exchange and Kowloon Stock Exchange. The Stock Exchanges Unification Ordinance was brought into operation on February 1, 1981, and all members of the four existing stock exchanges were invited to apply for membership of a new exchange company, The Stock Exchange of Hong Kong Limited, which will have the exclusive right to operate a stock market in Hong Kong from a date to be appointed by the Financial Secretary. The unification of the exchanges is expected to bring better overall management of the exchanges and to provide for more effective regulation. The stock exchanges represent a major source of capital to local enterprises and have attracted significant overseas investor interest.
The Securities Commission is responsible for ensuring compliance with the Securities Ordinance, the Protection of Investors Ordinance and the Stock Exchanges Unification Ordinance. The Securities Ordinance regulates registration of dealers and investment