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We propose that the Financial Secretary should be empowered, with the approval of the Governor in Council, to issue currency notes. Consistent with this amendment, the backing mechanism for the issue of bank notes will be extended to the currency notes, if any, issued by the Government.
Notwithstanding the enabling provision, the Government has no intention of taking over the note-issuing function from the note-issuing banks. This is merely to make the Bank Notes Issue Ordinance consistent with the provisions in the Joint Declaration and the Basic Law.
The Bill also provides an explicit statutory power for the Financial Secretary, with the approval of the Governor in Council, to authorise banks to issue or continue to issue currency. The three existing note-issuing banks will deem to have been authorised when the Ordinance comes into effect.
The core features of the present note-issuing regime (1.e. the issue of legal tender notes by the three note-issuing banks with the certificate of indebtedness as backing)will remain intact after the enactment of the Bill. There are just two proposed changes worth noting:
* the Financial Secretary may, with the approval of the Governor-in-Council, impose terms and conditions on the note issuing banks relating to bank note design, denomination and other arrangements for bank note issue. The Government does not presently have the statutory power to approve the design of bank notes and control other arrangements relating to currency issue, although the note-issuing banks do consult the Monetary Authority on new bank note design as a matter of practice;
*the fiduciary note issue of The Hongkong and Shanghai Banking Corporation Limited and Standard Chartered Bank will discontinue. For historical reasons, a very small amount of bank notes issued by The Ilongkong and Shanghai Banking corporation Limited ($60 million) and Standard Chartered Bank ($35 million) is backed by securities held with the Exchange fund and not by the non-interest bearing certificate of indebtedness. To be consistent with the Basic Law which stipulates that "the issue of Hong Kong currency must be backed by a 100 per cent reserve fund", both banks have agreed to terminated the fiduciary note issue when the Bank Notes Issue (Amendment) Bill comes into effect. The provisions governing such issue in the Hongkong and Shanghai banking Corporation Limited Ordinance will be repealed.