SATURDAY, OCTOBER 15, 1983
STATEMENT BY FINANCIAL SECRETARY
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FOLLOWING IS THE STATEMENT MADE BY THE FINANCIAL SECRETARY, SIR JOHN BREMRIDGE, AT THE PRESS CONFERENCE TODAY:
+I WANT TO TELL YOU ABOUT TWO STEPS WHICH THE GOVERNMENT IS TAKING NOW TO STABILISE THE EXCHANGE RATE OF THE HONG KONG DOLLAR.
+FIRST LET ME GIVE YOU SOME BACKGROUND. FOR 37 YEARS FROM 1935 TO JULY 1972 THE HONG KONG DOLLAR WAS PEGGED TO STERLING. IN THOSE DAYS THE STERLING AREA EXISTED AND FOR MOST OF THAT PERIOD THE INTERNATIONAL MONETARY SYSTEM WAS CHARACTERISED BY FIXED EXCHANGE RATES. FROM 1972 TO NOVEMBER 1974 THE HONG KONG DOLLAR WAS PEGGED TO THE U.S. DOLLAR. SINCE 1974 HONG KONG IN COMMON WITH OTHER MAJOR MARKET ECONOMIES HAS HAD A FREELY FLOATING EXCHANGE RATE. THIS FLOATING SYSTEM HAS SERVED US WELL. IT HAS GIVEN US A MEASURE OF INSULATION FROM THE UPS AND DOWNS OF OTHER ECONOMIES, AND UNDER IT HONG KONG HAS RECORDED VERY HIGH RATES OF ECONOMIC GROWTH. LIVING STANDARDS HAVE RISEN ACCORDINGLY.
+TOWARDS THE END OF LAST YEAR THE EXCHANGE RATE STARTED MARKEDLY TO WEAKEN, REFLECTING AMONGST OTHER FACTORS UNCERTAINTIES ABOUT HONG KONG'S FUTURE.
+BEFORE THE GOVERNMENT ANNOUNCED THREE WEEKS AGO THAT IT WAS CONSIDERING PROPOSALS TO STABILISE THE EXCHANGE RATE, CURRENCY DEPRECIATION WAS TENDING INCREASINGLY TO FEED ON ITSELF IN AN UNSTABLE AND IRRATIONAL MANNER. THIS DEPRECIATION WAS NOT JUSTIFIED BY EITHER CURRENT ECONOMIC DEVELOPMENTS OR FUTURE PROSPECTS. THE ECONOMY HAS REBOUNDED AND IS DOING VERY WELL. THERE IS LITTLE UNEMPLOYMENT AND EXPORTS ARE BOOMING. HONG KONG HAS SUBSTANTIAL FOREIGN CURRENCY RESERVES, A GENERALLY LIQUID BANKING SYSTEM AND VIRTUALLY NO GOVERNMENT DEBT.
+THE GOVERNMENT HAS BEEN CONCERNED BY THE FALLING EXCHANGE RATE AND HAS DONE EVERYTHING IN REASON, WITHIN THE ESTABLISHED FRAMEWORK, TO ATTEMPT TO STABILISE IT. THESE EFFORTS HAVE ACHIEVED ONLY LIMITED SUCCESS.
+THE CIRCUMSTANCES OF HONG KONG PRECLUDE EXCHANGE CONTROL. AFTER A THOROUGH EXAMINATION OF REALISTIC OPTIONS, WE HAVE NOW DECIDED TO ALTER THE FRAMEWORK WITHIN WHICH THE EXCHANGE RATE IS DETERMINED. WITH EFFECT FROM MONDAY, OCTOBER 17. THE TWO NOTE- ISSUING BANKS WILL PAY THE GOVERNMENT'S EXCHANGE FUND FOR ADDITIONAL CERTIFICATES OF INDEBTEDNESS, WHICH THEY ARE REQUIRED TO HOLD AS BACKING FOR ANY INCREASE IN THE IR NOTE ISSUES, IN FOREIGN EXCHANGE AT A FIXED RATE OF HK$7.80 EQUALS US$1.
+FROM THE SAME DATE, WHEN NOTES ARE WITHDRAWN FROM CIRCULATION AND THE NOTE-ISSUING BANKS SURRENDER CERTIFICATES OF INDEBTEDNESS THE EXCHANGE FUND WILL PAY THEM THE EQUIVALENT FOREIGN EXCHANGE AT THE SAME FIXED RATE. IT IS OUR INTENTION TO HOLD THIS RATE UNCHANGED.
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/+THE RATES