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HK DOLLAR BALANCES BILL
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FRIDAY, APRIL 6, 1979
A BILL TO LIMIT THE EXTENT TO WHICH THE GOVERNMENT'S HONG KONG DOLLAR BALANCES CAN FORM A BASE FOR THE CREATION OF CREDIT TO THE ECONOMY IS PUBLISHED IN TODAY'S (FRIDAY) GOVERNMENT GAZETTE.
THE EXCHANGE FUND (AMENDMENT) BILL 1979 IMPLEMENTS A PROPOSAL PUT FORWARD BY THE FINANCIAL SECRETARY IN HIS BUDGET SPEECH.
THE FINANCIAL SECRETARY WILL MOVE THE SECOND READING OF THE BILL IN THE LEGISLATIVE COUNCIL ON WEDNESDAY, APRIL 11.
A GOVERNMENT SPOKESMAN EXPLAINED THAT THE BILL PROVIDES THAT BALANCES HELD BY THE EXCHANGE FUND WITH A BANK IN HONG KONG PAYABLE ON DEMAND, AT CALL OR AT SHORT NOTICE (IN EFFECT, ALL BALANCES OTHER THAN TIME DEPOSITS) SHALL BE TREATED AS IF THEY WERE BALANCES FROM ANOTHER BANK,
HE ADDED THAT THE EFFECT, UNDER THE LIQUIDITY PROVISIONS OF THE BANK ING ORDINANCE, IS TO REQUIRE THE BANKS WITH WHOM THE BALANCES ARE HELD TO MATCH THEM AS TO 100 PER CENT WITH SPECIFIED LIQUID ASSETS, WHICH DO NOT INCLUDE LOANS AND ADVANCES TO THE PUBLIC.
THE SPOKESMAN SAID THAT UNDER THE LAW AS IT NOW STANDS, EXCHANGE FUND BALANCES PAYABLE ON DEMAND, AT CALL AND AT SHORT NOTICE HAVE TO BE MATCHED BY THE BANKS ONLY AS TO A MINIMUM OF 25 PER CENT WITH SPECIFIED LIQUID ASSETS UP TO 75 PER CENT MAY BE LENT OUT TO THE NON-BANK PUBLIC.
THE STATUS OF EXCHANGE FUND BALANCES PLACED ON TIME DEPOSIT WITH BANKS IN HONG KONG WILL NOT BE CHANGED BY THIS BILL: THOSE BALANCES WILL CONTINUE TO BE SUBJECT TO A MINIMUM 25 PER CENT LIQUID ASSETS REQUIREMENT.
BASED ON THE PRESENT MATURITY PATTERN OF THE EXCHANGE FUND'S HONG KONG DOLLAR DEPOSITS, THIS BILL IS NOT EXPECTED TO HAVE AN IMMEDIATE MARKED IMPACT ON THE BANKS HOLDING THOSE DEPOSITS.
BUT IT WILL ALWAYS BE OPEN TO THE GOVERNMENT TO INCREASE THE IMPACT OF THIS AMENDMENT BY CONVERTING PART OF THE FUND'S TIME DEPOSITS (WITH A 25 PER CENT MINIMUM LIQUID ASSETS REQUIREMENT) TO CALL OR SHORT NOTICE DEPOSITS (AND SO SUBJECT TO THE 100 PER CENT LIQUID ASSETS REQUIREMENT).
THE GOVERNMENT SPOKESMAN POINTED OUT THAT THE BILL IS IN NO WAY AN ATTACK ON THE LENDING BEHAVIOUR OF THE BANKS HOLDING THE EXCHANGE FUND DEPOSITS.
RATHER IT STEMS FROM A REALISATION THAT, UNDER A FLOATING EXCHANGE RATE REGIME, THERE ARE LIKELY TO BE PERIODS WHEN THE GOVERNMENT'S HONG KONG DOLLAR BALANCES (AND, MORE ESPECIALLY, ADDITIONS TO THOSE BALANCES) CANNOT EASILY BE REMOVED FROM THE HONG KONG BANKING SYSTEM BY CONVERTING THEM INTO FOREIGN CURRENCIES.
THE GOVERNMENT HAS, THEREFORE, AN OBLIGATION TO LIMIT THE CONTRIBUTION THAT THESE BALANCES CAN MAKE TO THE GROWTH OF LOANS AND ADVANCES BY THE BANK ING SYSTEM AS A WHOLE.
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