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CHAPTER 5 FINANCIAL AND
MONETARY AFFAIRS
HONG KONG is an international financial centre which comprises an integrated network of financial institutions and markets. The government's objective is to further the development of the financial markets by providing an appropriate legal, regulatory, infrastructural and administrative framework to, inter alia, provide a level playing field for all market participants, maintain the stability of the financial and monetary systems and enable Hong Kong to compete effectively with other major financial centres.
Some 474 authorised institutions and local representative offices of banks from more than 40 countries conduct business in Hong Kong. The banking sector's external assets are among the highest in the world. Hong Kong was the seventh largest centre for foreign exchange trading according to the 1998 triennial global survey conducted by the Bank for International Settlements (BIS).
Hong Kong's stock market is one of the world's largest in terms of market capitalisation. The Hang Seng Index closed at 10 049 points, or about 6.3 per cent lower than in 1997, which is moderate compared with neighbouring markets.
On the monetary front, the Hong Kong dollar remained very stable in 1998, moving within a narrow range of $7.736-7.75 to US$1. This was despite intensive speculative attacks on the Hong Kong dollar amid a volatile external environment. In the attacks in August, there was clear evidence of speculators deploying a double play strategy. To ensure the stability and integrity of the financial markets and to end the manipulation that threatened systemic stability, the government operated in the stock and futures market in the second half of August. In early September, a package of seven technical measures to strengthen the currency board arrangements were introduced to follow through the market operations. The combination of market operations and the strengthening measures achieved their intended effect and helped stabilise the foreign exchange and money market conditions in the last quarter. In October, the Exchange Fund Investment Limited (EFIL) was set up to manage the Hang Seng Index constituent stocks acquired in the market operation. EFIL is responsible for safeguarding the government's interests and rights in the shareholdings, and for identifying value-added opportunities for disposing of the shares with minimum disruption of the market.
Hong Kong as an International Financial Centre
Hong Kong's favourable geographical position, bridging the time gap between North America and Europe, its strong links with China and other economies in South-East Asia and excellent communications with the rest of the world have helped Hong