FINANCIAL AND MONETARY AFFAIRS
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reserves. Subsequently, the Land Fund was established by resolution made and passed by the Provisional Legislative Council on July 23 under section 29 of the Public Finance Ordinance. The fund is now managed by the HKMA under the direction of the Financial Secretary as a separate portfolio from the Exchange Fund. A Land Fund Advisory Committee, chaired by the Financial Secretary, was set up on July 1 to advise the Financial Secretary on the management and investment strategy of the fund. At December 31, the total assets of the Land Fund stood at $195.6 billion.
Exchange Fund
The HKSAR Government's Exchange Fund was established by the Currency Ordinance of 1935 (later renamed the Exchange Fund Ordinance). Since its inception, the fund has held the backing to the note issue. In 1976, the fund's role was expanded. The assets of the Coinage Security Fund (which held the backing for coins issued by the government), as well as the bulk of foreign currency assets held in the government's General Revenue Account, were transferred to the fund. On December 31, 1978, the Coinage Security Fund was merged with the Exchange Fund. In 1976, the government began to transfer the fiscal reserves of its General Revenue Account (apart from the working balances) to the fund. This arrangement was introduced to avoid fiscal reserves having to bear exchange risks arising from investments in foreign currency assets and to centralise the management of the government's financial assets. The fiscal reserves are not permanently appropriated for the use of the Exchange Fund, but are repaid to the General Revenue Account when they are required to meet the obligations of the general revenue. Through this transfer of the fiscal reserves, the bulk of the government's financial assets are, therefore, placed with the fund.
The Exchange Fund's statutory role, as defined in the Exchange Fund Ordinance, is primarily to affect the exchange value of the currency of Hong Kong. Its functions were extended on the enactment of the Exchange Fund (Amendment) Ordinance 1992 by introducing a secondary and subsidiary role of maintaining the stability and integrity of the monetary and financial systems, with a view to maintaining Hong Kong as an international financial centre.
The HKMA manages the Exchange Fund. Apart from ensuring that the fund meets its statutory roles, the HKMA's principal activity on a day-to-day basis is the active management of the fund's assets. These are held mainly in the form of bank deposits, equities and marketable interest-bearing instruments in certain foreign currencies and in Hong Kong dollars.
The HKMA adopts a programme, initiated on its formation in April 1993, of reviewing its investment operations and strategy. Having regard to the statutory purposes for which the Exchange Fund was created and maintained, the investment style and strategies now in place closely resemble those of comparable central banks and monetary authorities. Strategies appropriate to a long-term fund — such as a benchmark approach and a greater use of the long-term capital markets have been adopted, and the range of currencies and instruments used has also been increased.
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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