FINANCIAL AND MONETARY AFFAIRS
The HKMA continues to place great emphasis on establishing links with other market participants. The management style is one of openness and co-operation with the market, with a view to encouraging close working relationships to enable the markets to play their part in assisting in the HKMA's management of the fund. In terms of day-to-day operation, the HKMA has established three portfolios: (a) a portfolio of assets to act as a hedge against the interest-bearing liabilities of the fund, to ensure that the fund can at all times meet all the claims upon it; (b) a portfolio of liquid reserves to be available whenever required to meet market operational needs; and (c) an investment portfolio to preserve the fund's value for future generations in Hong Kong. The returns from the management of the fund and the investment style adopted are set out and explained in the HKMA's annual report each year.
Another function related to the Exchange Fund is to supply notes and coins to the banking system. Bank notes in the denominations of $20, $50, $100, $500 and $1,000 are issued by the Hongkong and Shanghai Banking Corporation Limited, the Standard Chartered Bank and the Bank of China. The first two banks also issue $10 notes. Apart from a very small fiduciary issue, which is backed by eligible securities, the note-issuing banks may issue currency notes only against non-interest-bearing Certificates of Indebtedness issued by the fund. The fund bears the costs of maintaining the note issue (apart from the proportion of the costs relating to the fiduciary issue), and the net profits of the note issue accrue to the fund.
The administration of the coin circulation is the responsibility of the HKMA. Coins of $10, $5, $2, $1, 50 cents, 20 cents and 10 cents denominations are issued by the government, and the assets received against their issue are held in the Exchange Fund. The government also issued currency notes of one-cent denomination until September 30, 1995, after which they were demonetised and thus ceased to be legal tender. The introduction of the bauhinia flower series continued, with greater emphasis being placed on the higher denominations. The total currency in circulation at the end of 1995 was $81.7 billion.
On December 31, 1994, the total assets of the fund stood at $408 billion, of which foreign currency assets amounted to US$49 billion. The accumulated earnings of the fund amounted to $129 billion. The financial position of the fund for the six years from 1989 to 1994 is shown at Appendix 16. With a view to showing the government's continued commitment to greater openness and transparency, and to providing the public with more evidence of the considerable strength of Hong Kong's external position, data on the fund are now available on a quarterly basis. Based on unaudited figures, total assets stood at $450 billion and accumulated earnings of the fund amounted to $153 billion as at June 30, 1995. The fund's foreign currency assets, including forward transactions to be settled, amounted to US$54.6 billion at September 30.
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