FINANCIAL AND MONETARY AFFAIRS
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Corporation Limited and the Bank of China (Hong Kong) Limited. The Bank of China (Hong Kong) Limited assumed the role of a note-issuing bank in place of the Bank of China following the restructuring of the Bank of China Group on October 1, 2001. The note-issuing banks may issue currency notes only by surrendering non- interest-bearing US dollar backing at a fixed exchange rate of 7.80. Thus the Fund enjoys the seigniorage of the currency notes.
Through the HKMA, the Government issues coins of $10, $5, $2, $1, 50 cents, 20 cents and 10 cents denominations. Sufficient quantities of all denominations of coins have been maintained for injection into the market when required. The total of notes and coins in circulation at the end of 2001 was $113 billion.
On June 20, 2001, the Bank of China (Hong Kong) Limited and Standard Chartered Bank put into circulation their enhanced $1,000 banknotes, bearing the additional security features which had already been applied to the $1,000 banknote of The Hongkong and Shanghai Banking Corporation Limited in 2000. The new features include a holographic windowed thread, coloured fluorescent fibres and a highlight watermark showing the number '1000'. After the launch of the enhanced $1,000 banknotes, there was a significant decrease in 2001 in the number of counterfeit $1,000 banknotes detected.
Exchange Fund Investment Limited
The Exchange Fund Investment Limited (EFIL) manages the share portfolio acquired by the Exchange Fund during the market intervention in August 1998 together with the Hong Kong equity portfolio transferred from the Land Fund to the Exchange Fund in November 1998. The Exchange Fund's investment benchmark provides for 5 per cent of the Exchange Fund to be invested in Hong Kong equities. This investment portfolio is managed by the EFIL through external managers. The remainder of the Exchange Fund's Hong Kong equity portfolio is being disposed of.
During the year, Hong Kong equities from the Exchange Fund continued to be sold to the Tracker Fund of Hong Kong (TraHK) under the Tap Facility for TraHK. TraHK is an Exchange Traded Index Fund listed and traded on the Stock Exchange of Hong Kong. TraHK's investment objective is to track the Hang Seng Index by holding a portfolio of shares substantially replicating the composition and weighting of the Hang Seng Index. Units in TraHK can be created or redeemed in kind by delivery or receipt of baskets of Hang Seng Index Shares. TraHK units can also be created for cash using the Tap Facility which allows the Manager of TraHK to use investors' cash to acquire Hang Seng Index Shares from the Exchange Fund to create TraHK units for delivery to the investors. This mechanism enables the Exchange Fund to continue passively selling more shares into TraHK in response to investor demand. A quarterly limit is placed on the amount of shares sold through the Tap Facility.
The value of shares sold via the Tap Facility during the year was $35.1 billion. By December 31, 2001, therefore, the Exchange Fund had disposed of about $118.4 billion of shares via the initial offer of TraHK and the subsequent Tap Facility.
On November 12, 2001, the second tranche of TraHK Loyalty Bonus Units was allocated to 127 813 qualified investors who were still holding their original TraHK units on that date. (The first tranche of Loyalty Bonus Units was allocated on