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WEDNESDAY, OCTOBER 2, 1985
+ITS LIABILITIES COMPRISE CERTIFICATES OF INDEBTEDNESS ISSUED TO THE NOTE-ISSUING BANKS, COINS IN CIRCULATION,
AND DEBT CERTIFICATES ISSUED TO THE TREASURY. ITS ASSETS ARE DEPOSITS WITH FINANCIAL INSTITUTIONS AND SECURITIES. HELD IN VARIOUS CURRENCIES: US DOLLARS, CANADIAN DOLLARS, DEUTSCHEMARKS, SWISS FRANCS, GUILDERS, YEN, STERLING AND, OF COURSE, HONG KONG DOLLARS. THE SECURITIES ARE MOSTLY IN A FORM WHICH CAN BE RELATIVELY EASILY CONVERTED INTO CASH,+ HE SAID.
HONG KONG'S RESERVES AND ALL OF EXCHANGE FUND'S ASSETS BELONG TO HONG KONG AND ARE EMPLOYED FOR THE BENEFIT OF HONG KONG, HE ADDED.
HE EXPLAINED THAT THERE WERE THREE VERY GOOD REASONS FOR HOLDING THE BULK OF THE FUND IN FOREIGN CURRENCY ASSETS: SUITABLE HONG KONG DOLLAR ASSETS WERE NOT AVAILABLE ON THE SCALE REQUIRED THE FUND MUST HAVE FOREIGN CURRENCIES TO INTERVENE IN THE MARKET TO COUNTER EXCHANGE RATE PRESSURE IF REQUIRED= AND THE EFFECT OF INCREASED INTERNATIONAL CONFIDENCE IN HONG KONG BECAUSE OF THE FUND'S SUBSTANTIAL FOREIGN EXCHANGE HOLDINGS.
COMMENTING ON THE NEED FOR A MECHANISM TO CONTROL MONEY SUPPLY IN HONG KONG, WHICH APPEARS TO BE ABSENT IN OUR SYSTEM, MR BLYE SAID ADVOCATES OF SUCH A MECHANISM FOR HONG KONG OFTEN OVERLOOKED THE FACT THAT HONG KONG HAD LITTLE GOVERNMENT DEBT, AND DID NOT PAY SUFFICIENT REGARD TO THE DIFFERENCES BETWEEN OUR ECONOMY AND THOSE OF COUNTRIES WITH SUCH MECHANISMS.
+HONG KONG HAS BEEN SUCCESSFUL PARTLY BECAUSE ITS ECONOMY IS AND HAS TO BE FLEXIBLE. THE BIG QUESTION IS WHETHER THIS FLEXIBILITY COULD EXIST SIDE BY SIDE WITH THIS TYPE OF MONETARY CONTROL WHICH MUST FROM TIME TO TIME INHIBIT THE GROWTH OF NEW ENTERPRISES: THE LIFE BLOOD OF HONG KONG, HE SAID.
ON THE NOTE ISSUE MECHANISM IN HONG KONG, MR BLYE SAID THAT THE PRESENT LINKED EXCHANGE RATE SCHEME WAS NOT A RECENT INVENTION AND WAS ESSENTIALLY THE SAME AS THE STERLING LINKED SCHEME WHICH RULED FROM 1935 TO 1972 AND EVEN BEFORE 1935 WHEN THE NOTE ISSUE WAS BACKED BY SILVER.
THERE WERE HOWEVER TWO MAJOR DIFFERENCES BETWEEN THE PRESENT US DOLLAR LINKED SCHEME AND THE STERLING LINKED SCHEME: UNDER THE PRESENT SCHEME CERTIFICATES OF INDEBTEDNESS ARE BOUGHT AND SOLD AT THE SAME RATE OF HK$7.80 TO US$1 WHEREAS UNDER THE STERLING SCHEME A MARGIN OF ONE EIGHTH OF A PENNY PER DOLLAR WAS CHARGED WHEN CERTIFICATES WERE REDEEMED; FURTHERMORE, UNDER THE STERLING LINKED SCHEME, THE STERLING HAD TO BE PROVIDED BY THE NOTE ISSUING BANKS WHILE OTHER BANKS COULD ACQUIRE NOTES WITH HK DOLLAR BALANCES.
/MR BLYE