FINANCIAL AND MONETARY AFFAIRS
Financial Markets
Hong Kong has a mature and active foreign exchange market, which forms an integral part of the corresponding global market. The link with other major overseas centres enables foreign exchange dealing to continue 24 hours a day around the globe. With an average daily turnover of about US$49 billion early in 1989, Hong Kong is among the largest markets in Asia along with Tokyo and Singapore. Besides the Hong Kong dollar, most major currencies are actively traded in Hong Kong, including the US dollar, Deutschemark, Yen, Sterling, Swiss franc, Australian dollar and Canadian dollar. As a market in foreign exchange, Hong Kong is favoured by a host of factors such as a favourable time zone location, a large volume of trade and other external transactions, the presence of a large number of international banks with experience in foreign exchange transactions, the absence of exchange controls and a highly-advanced telecommunica- tions system.
Equally well-established and active is the interbank money market, in which wholesale Hong Kong dollar deposits and foreign currency deposits (mainly in US dollars) are traded both between authorised institutions in Hong Kong, and between local and overseas institutions. This market is mainly for short-term money - with maturities ranging from overnight to 12 months for both Hong Kong dollars and US dollars. The traditional lenders of Hong Kong dollars in the market tend to be the locally-incorporated banks, while the major borrowers are those foreign banks without a strong Hong Kong dollar deposit base in Hong Kong. As an indication of the relative size of the market, interbank liabilities accounted for 36 per cent of the total Hong Kong dollar liabilities of the banking sector at the end of 1991; the corresponding share for foreign currency interbank liabilities was 78 per cent.
The launch of the Exchange Fund Bills Programme in March 1990 has invigorated the local capital markets. Commencing with the weekly issue of 91-day bills, the programme was expanded to include biweekly issues of 182-day bills in October 1990 and issues of 364-day bills every four weeks in February 1991. The bills are issued for the account of the Exchange Fund and are used as a monetary policy instrument. They are available in minimum denominations of HK$500,000 and are issued on a discount basis by tender. Tenders are open to recognised dealers selected from institutions authorised under the Banking Ordinance. To promote secondary market activity, twenty-two recognised dealers have been appointed as market makers which have undertaken to quote two-way yields during normal money market trading hours. At the end of 1991, outstanding issues of 91-day, 182-day and 364-day bills amounted to $7.8 billion, $3.4 billion and $2.8 billion respectively.
The Government Bond Programme launched in mid-November 1991 marked another significant development in the local capital markets. The proceeds of the bonds are credited to the Capital Works Reserve Fund and the Capital Investment Fund for the purposes of financing infrastructural developments. The market structure of the bond programme is similar to that of the Exchange Fund Bills Programme. Both recognised dealers and market makers are appointed. The bonds are issued in paperless form and in denominations of $50,000. Initially, two-year bonds have been introduced to provide continuity in the maturity spectrum of the government debt market. Longer-term bonds may be issued later, having regard to the government's use of fund and the development of the bond programme. At the end of 1991, outstanding value of the bonds stood at $0.6 billion.
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