THE ECONOMY
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Chartered Bank Limited against holdings of certificates of indebtedness issued by the Exchange Fund.
These non-interest-bearing liabilities of the Exchange Fund are issued or redeemed as the amount of notes in circulation rises or falls. When the Hong Kong dollar was pegged to sterling prior to June 1972, certificates of indebtedness were issued against and redeemed in sterling at a fixed exchange rate. Between June 23, 1972 and November 24, 1974, when the Hong Kong dollar was pegged to the US dollar, and between November 25, 1974 and October 15, 1983, when the Hong Kong dollar was floating, such payments were made in Hong Kong dollars. Since October 17, 1983, certificates of indebtedness have been issued and redeemed by the two note-issuing banks against payments in US dollars at a fixed exchange rate of HK$7.80=US$1. The Exchange Fund bears the costs of maintaining the note issue (apart from the 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 cent, 20 cent, 10 cent and five-cent denominations, and currency notes of one-cent denomination, are issued by the government. The total currency in circulation at the end of 1987, with details of its composition, is shown at Appendix 9.
Public Sector and Public Finances
For analytical purposes, the public sector is conventionally taken to include the Hong Kong Government itself, together with the Housing Authority and the Urban and Regional Councils. Expenditure by institutions in the private or quasi-private sectors is included to the extent that it is met by government subventions but expenditure by organisations in which the government has only an equity position, such as the Mass Transit Railway Corporation and the Kowloon-Canton Railway Corporation, is not included.
The government controls its finances through a series of fund accounts. The General Revenue Account is the main account for day-to-day departmental expenditure and revenue collection. Six other funds have been established mainly to finance capital expenditure and to make loans. They are the Capital Works Reserve Fund, the Develop- ment Loan Fund, the Home Ownership Fund, the Lotteries Fund, the Mass Transit Fund and the Student Loan Fund.
The Capital Works Reserve Fund finances the Public Works Programme and land acquisitions. With effect from the entry into force on May 27, 1985 of the Sino-British Joint Declaration, the fund was re-structured to allow for implementation of Annex III to the Joint Declaration dealing with the accounting of premium income obtained from land transactions. The income of the fund is derived mainly from this source and from transfers from the General Revenue Account.
The Development Loan Fund is used mainly to finance social and economic develop- ments including, in particular, loans to the Housing Authority for the construction of public housing estates. Transfers are made from the General Revenue Account to the fund to meet the loan requirements of the Housing Authority. Otherwise the fund's income is derived from interest payments and capital repayments.
The Home Ownership Fund finances mainly the construction of flats for sale under the Home Ownership Scheme. The Housing Authority is the government's agent for the design, construction and marketing of these flats. The fund was initially established by a transfer from the General Revenue Account, and derives its income from the proceeds of sales of the flats. The fund also finances the recurrent expenditure on the administration and planning of housing under the Private Sector Participation Scheme.