FINANCIAL AND MONETARY AFFAIRS
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 it 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 for public use. Banknotes in 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 note-issuing banks may issue currency notes only against non-interest-bearing Certificates of Indebtedness issued by the Fund. The Fund bears the paper and printing costs relating to the note issue.
The government issues coins of $10, $5, $2, $1, 50 cents, 20 cents and 10 cents denominations. Administration of the coin circulation is the responsibility of the HKMA. Exceptional public demand caused the total number of new coins placed into circulation in 1997 to reach a record 1.2 billion pieces, compared with the normal order volume per year of about 300 to 400 million coins. The total notes and coins in circulation at the end of 1997 was $92.2 billion.
During the year, three commemorative coin products were issued to mark the establishment of the HKSAR. They included a $1,000 gold coin and two commemorative coin sets (available in both proof and brilliant uncirculated versions). Both coin sets were of seven coins with their own special design and in the same denominations as the seven currently circulating coins. A philatelic-numismatic cover incorporating a $10 coin with special design and a $5 stamp were also issued during the year to commemorate the opening of the Lantau Link.
In March, the government sold 15 per cent of the shareholding of the Hong Kong Note Printing Limited to the China Banknote Printing and Minting Corporation, a PRC state-owned enterprise. In October, the HKSARG sold a further 10 per cent of the company's issued shares to each of the three note-issuing banks. The HKSARG will continue to maintain a majority stake in the note-printing company. The sale of shares will widen and strengthen the shareholder base of the company and contribute to the future success and development of the company.
On December 31, 1997, the Exchange Fund's total assets stood at $535 billion, of which foreign currency assets amounted to US$64 billion. Accumulated earnings amounted to $172 billion. The fund's financial position for the six years from 1991 to 1996 inclusive, is shown at Appendix 19. 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, foreign reserves figures were made available on a monthly basis from January 1997. Based on unaudited figures, the fund's total assets stood at $569 billion and its accumulated earnings amounted to $182 billion at June 30, 1997. Foreign currency assets, excluding forward transactions to be settled, amounted to US$75.3 billion at December 31.
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