THURSDAY, NOVEMBER 17, 1983
GOVERNMENT ENCOURAGED BY
EXCHANGE RATE ADJUSTMENT MECHANISM
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THE GOVERNMENT HAS BEEN ENCOURAGED BY THE EFFICIENCY OF THE ADJUSTMENT MECHANISM DURING THE FIRST MONTH OF THE BANKNOTE ARRANGEMENT SCHEME, THE DEPUTY SECRETARY FOR MONETARY AFFAIRS, MR TONY LATTER, SAID THIS (THURSDAY) EVENING.
+BUT WE ARE BY NO MEANS COMPLACENT. WE SHALL KEEP A CLOSE WATCH ON DEVELOPMENTS,+ MR LATTER SAID,
SPEAKING AT A DINNER FUNCTION HOSTED BY THE HONG KONG ECONOMIC ASSOCIATION, MR LATTER NOTED THERE HAD BEEN SUGGESTION THAT THE GOVERNMENT SHOULD INTERVENE, IN EITHER TRADITIONAL OR NOVEL WAYS, TO ASSIST THE SCHEME'S OPERATION.
THIS IS NOT OUR GENERAL INTENTION, AND SHOULD NOT BE NECESSARY IF THE ADJUSTMENT MECHANISM IS WORKING SATISFACTORILY, BUT WE DO OF COURSE RESERVE OUR POSITION, HE STATED.
+1 MIGHT ADD HERE THAT GOVERNMENT WILL CONTINUE AS A GENERAL RULE NOT TO DISCLOSE ANYTHING ABOUT ITS OWN MARKET OPERATIONS.
+STORIES WHICH YOU HEAR, HOWEVER ASSERTIVE OR SEEMINGLY AUTHORITATIVE, WILL THEREFORE CONTINUE TO BE CONJECTURE,+ HE STRESSED.
ON THE NEW MONETARY SCHEME, MR LATTER POINTED OUT THE NOTE ISSUING BANKS NOW SUPPLY HK$ BANKNOTES TO OTHER BANKS, AND TAKE NOTES BACK FROM THEM, ONLY AGAINST PAYMENTS IN US DOLLARS AT THE SAME $7.80 RATE AS APPLIES TO THE NOTE-ISSUING BANKS IN THEIR DEALINGS IN CERTIFICATES OF INDEBTEDNESS.
+THE GOVERNMENT SUPPORTED THE INTRODUCTION OF THIS SECOND- STAGE MECHANISM ON THE GROUNDS THAT IT WOULD HELP THE $7.80 RATE FOR NOTES TO PERMEATE COMPETITIVELY THE MONETARY SYSTEM.
+ IT ALSO SEEMED THAT SUCH AN ARRANGEMENT WOULD PRE-EMPT, OR AT LEAST MINIMISE, ANY SUGGESTIONS THAT THE TWO NOTE-ISSUING BANKS WERE EITHER UNDULY FAVOURED OR UNDULY DISFAVOURED UNDER THE NEW SCHEME,+ HE SAID.
IT MIGHT BE ARGUED THAT THIS STRIVING TO ESTABLISH THE BROADEST CONVERTIBILITY BETWEEN HK$ NOTES AND US DOLLARS WAS AT SOME COST IN TERMS OF THE OTHER CORNERSTONE OF THE ESSENTIAL ARBITRAGE PROCESS, HE NOTED.
THIS OTHER CORNERSTONE IS THE CONVERTIBILITY BETWEEN HK$ BALANCES AND NOTES, SINCE BANKS ARE NOW DENIED DIRECT CONVERTIBILITY OF THE BALANCES THEY HOLD WITH THE NOTE-ISSUING BANKS.
+HOWEVER, I DO NOT CONSIDER THAT THIS SHOULD BE MUCH OF A PROBLEM AS REGARDS THE OVERALL EFFECTIVENESS OF THE SCHEME, SINCE BANK CUSTOMERS HAVE SHOWN THAT THEY, AS A GROUP, ARE HIGHLY ALERT TO THE ARBITRAGE OPPORTUNITIES,+ MR LATTER SAID.
/ON THE