XN000022-1981-11-24 — Page 3

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TUESDAY, NOVEMBER 24, 1981

MR BLYE SAID PART OF THE FUND WAS HELD IN BRITISH GOVERNMENT SECURITIES AND THAT THIS WAS THE ONLY WAY IN WHICH IT COULD BE SAID THAT HONG KONG'S RESERVES WERE USED FOR THE BENEFIT OF THE UNITED KINGDOM.

+BUT THE FUND HAS ALSO LENT MONEY TO OTHER COUNTRIES THROUGH THE PURCHASE OF SECURITIES ISSUED BY GOVERNMENTS OF CANADA, NEW ZEALAND, AUSTRALIA, WEST GERMANY, HOLLAND, NORWAY, DENMARK,

.S.A. AND JAPAN, TO MENTION THE MAIN COUNTRIES TO WHICH THE FUND HAS LENT MONEY, HE SAID.

+MONEY HAS ALSO BEEN LENT TO INTERNATIONAL INSTITUTIONS SUCH AS THE EUROPEAN INVESTMENT BANK, THE WORLD BANK AND THE ASIAN DEVELOPMENT BANK.

+ALL OF THESE SECURITIES INCLUDING BRITISH GOVERNMENT LIABILITIES, EARN INTEREST AND THEY CAN ALL BE CONVERTED INTO THE CURRENCY IN WHICH THEY ARE DENOMINATED.

+ IN TURN, THE PROCEEDS FROM SUCH SALES CAN BE USED TO PURCHASE OTHER FREELY CONVERTIBLE CURRENCIES INCLUDING HONG KONG DOLLARS,+ HE ADDED.

MR BLYE SAID ALTHOUGH THE EXCHANGE FUND'S ACCOUNTS WERE NOT PUBLISHED, IT WAS WELL KNOWN INTERNATIONALLY THAT ITS FOREIGN EXCHANGE HOLDINGS WERE SUBSTANTIAL, AND ALTHOUGH THESE HOLDINGS WERE NOT ACQUIRED ESSENTIALLY TO INCREASE CONFIDENCE IN HONG KONG, THEIR EXISTENCE HAD DONE JUST THAT.

+1 AM EQUALLY SURE, EVEN IF WE COULD IGNORE THE NEED TO HOLD SUBSTANTIAL FOREIGN CURRENCY ASSETS FOR EXCHANGE RATE MANAGEMENT PURPOSES, THAT WERE THE BULK OF OUR OVERSEAS HOLDINGS TO BE REPATRIATED TO HONG KONG, SO THAT THE EXCHANGE FUND'S LIABILITIES WERE LARGELY MATCHED BY HONG KONG DOLLAR DENOMINATED ASSETS - AND FOR MONETARY REASONS THIS IS OBVIOUSLY NOT POSSIBLE, AT LEAST AT THE PRESENT TIME - THAT INTERNATIONAL CONFIDENCE IN HONG KONG WOULD BE SERIOUSLY WEAKENED,+

MR BLYE SAID HE HAD REASON TO BELIEVE ALSO THAT IT WOULD HAVE BEEN MUCH MORE DIFFICULT AND PERHAPS EVEN IMPOSSIBLE TO ARRANGE OVERSEAS LOANS FOR CAPITAL INTENSIVE PROJECTS SUCH AS THE MTR IF HONG KONG'S OFFICIAL FOREIGN CURRENCY RESERVES WERE NOT SUBSTANTIAL.

IN MOST YEARS, HE POINTED OUT, THE FUND'S INCOME EXCEEDS ITS EXPENDITURE, AND AS A RESULT, THERE IS A TENDENCY FOR THE FUND'S ACCUMULATED SURPLUS TO GROW AND FOR THE LIABILITY COVER TO INCREASE.

IN THE FIRST HALF OF 1981, FOR EXAMPLE, THE FUND EARNED ABOUT $2 200 MILLION, AFTER PAYING INTEREST ON EXCHANGE FUND DEBT CERTIFICATES AND AFTER MEETING ALL ADMINISTRATIVE EXPENSES, THE NOTE AND COIN CIRCULATION COSTS, ITS INCOME AND EXPENDITURE ACCOUNT FOR THE HALF YEAR SHOWED A SURPLUS OF ABOUT $1 000 MILLION.

+THIS MEANS, BY WAY OF COMPARISON, THAT THE EXCHANGE FUND SURPLUS FOR THE HALF YEAR IS ROUGHLY EQUAL TO THE TOTAL COLLECTIONS FROM RATES IN A FULL YEAR,+ HE SAID.

/COMPARED WITH