APPENDICES
APPENDIX 16
(Chapter 6: Financial and Monetary Affairs) EXCHANGE FUND BALANCE SHEET
Note
$ Million
1989
1990
As at end of
1991
1992
1993 *
1994
Assets
Foreign Currency Assets
149,152
Hong Kong Dollar Assets
1
9,625
192,323 3,874
225,333 10,788
274,948
335,499
384,359
12,546
12,987
24,126
158,777
196,197
236,121
287,494
348,486
408,485
Liabilities
Certificates of Indebtedness
Transfers of Fiscal Reserves
23
37,191
40,791
46,410
58,130
68,801
74,301
52,546
63,226
69,802
96,145
115,683
131,240
Coins in Circulation
2,012
2,003
2,299
2,559
2,604
3,372
Exchange Fund Bills and notes
6,671
13,624
19,324
25,157
46,140
Other Liabilities
4
1,603
391
4,834
3,220
7,314
22,614
Balance of Banking System
5
978
480
500
1,480
1,385
2,208
94,330
113,562
137,469
180,858
220,944
279,875
Accumulated Earnings
64,447
82,635
98,652
106,636
127,542
128,610
NOTES ON THE ACCOUNTS
2.
3.
4.
5.
(a) Investments
The fund is invested in interest-bearing deposits with banks in Hong Kong and overseas and in a variety of financial instruments, including bonds, notes, treasury bills and US equities.
(b) Foreign currency assets distribution
A large proportion of the Fund's foreign currency assets are held in US dollars. Apart from the US dollar, the Fund also holds assets denominated in other major foreign currencies, such as the Australian dollar, Belgian franc, Canadian dollar, Danish Krone, Deutschemark, Dutch guilder, the ECU, French franc, Japanese yen, pound sterling, Swiss franc, etc.
(c) Location of assets
The assets are held in deposit, trustee and safe-keeping accounts with banks, central banks and custodial organizations situated in Hong Kong and other major financial centres.
(d) Valuation of assets and liabilities
In order to give a more appropriate presentation of the results and financial position of the Exchange Fund, the accounting policy with respect to the valuation of assets and liabilities has been changed in accordance with the recommendation of the International Accounting Standards Committee Exposure Draft E48. For 1992 and prior years, all assets were shown at market value, with the exception of fixed deposits, which were shown at cost. All liabilities were shown at their face amount, with the exception of Exchange Fund Bills and notes, which were shown at discounted or amortized value. From 1993 onwards, all assets of Exchange Fund, and its liabilities in respect of Exchange Fund Bills and Notes and other borrowings, are now shown at the market value on the last day of each accounting period. The Fiscal Reserves Account is still shown at its face amount, with the difference between its market value and the face amount being included in other liabilities.
(e) Translation of foreign currency assets and liabilities
US dollar assets and liabilities are translated into HK dollars at the linked exchange rate of US$1 = HK$7.80. Assets and liabilities in other foreign currencies are translated into HK dollars based on US dollar middle market cross rates in London at the close of business on the last business day of the accounting period.
As backing for their bank note issues, the three note-issuing banks are required to hold non-interest bearing Certificates of Indebtedness issued by the Exchange Fund. Issuance and redemption of these Certificates are made against payments in US dollars at a fixed rate of US$1 = HK$7.80.
This comprises the fiscal reserves which have been transferred from the General Revenue Account, Capital Investment Fund, Loan Fund and Capital Works Reserve Fund of Hong Kong Government to the Exchange Fund on an interest earning basis.
Other liabilities comprise expenses accrued at the year end, in the main interest due on transfer from fiscal reserves, other borrowings, provision for contingency related to Overseas Trust Bank Limited and the difference between the market value and the face amount of the Fiscal Reserves Account (see Note 1(d)).
In accordance with the Accounting Arrangements introduced in July 1988, The Hongkong and Shanghai Banking Corporation Limited, as the Management Bank of the Clearing House of Hong Kong Association of Banks, is required to maintain a Clearing Account with the Exchange Fund. The balance in the Account, which represents the level of liquidity in the interbank market, is determined by the Monetary Authority. The Accounting Arrangements enable the Monetary Authority to maintain exchange rate stability more effectively by influencing the level of interbank liquidity through money market operations.
* Figures for 1993 shown above reflect the accounting policies adopted in 1994. Figures for 1992 and prior years have not been restated.