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Answer:
In its management of the Exchange Fund, the Monetary Authority pays close regard to market sentiment and expectations. Earlier this year both of these pointed to the US dollar weakening, and the Monetary Authority has therefore been switching a modest proportion of the assets of the Fund out of US dollars and into DM and Yen.
However I would like to put these moves in perspective. The statutory purposes for which the Exchange Fund was created are basically "to affect ... the exchange value of the currency of Hong Kong" and "to maintain the stability and integrity of the monetary and financial systems of Hong Kong." In view of this, the management strategy that the Monetary Authority pursues for the assets of the Exchange Fund places a very high degree of emphasis on liquidity and security of the assets.
The link of our currency to the US dollar, the fact that the Exchange Fund's liabilities are all denominated in HK dollars and the need not to run unwarranted risks will mean that the proportion of US dollars in the Fund will remain relatively high. At the end of 1994, this proportion was 73%.
Within these constraints, we have brought the level down slightly, currently to about 70%. We have done so in a gradual manner because the Exchange Fund is a very substantial fund, and it would be counterproductive from an investment angle and potentially disruptive to the currency markets to move major parts of the Fund between currencies quickly.
I have full confidence in the professional capability of the Authority, with the guidance of Exchange Fund Advisory Committee, to manage the Exchange Fund.
End/Wednesday, May 17, 1995