XN000022-1989-03-01 — Page 13

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WEDNESDAY, MARCH 1, 1989

HE SAID ALL THOSE

INVOLVED IN CONTRIBUTING TOWARDS PUTTING TOGETHER THESE ARRANGEMENTS HAD GIVEN A CLEAR DEMONSTRATION OF THEIR SUPPORT TO THE FIRM POLICY AND OF THEIR COMMITMENT TO MONETARY SYSTEM.

OF MAINTAINING EXCHANGE RATE STABILITY ENSURING THE GENERAL STABILITY OF THE

ARRANGEMENTS IS

"WHEN INTERVENTION THROUGH THE NEW ACCOUNTING NECESSARY, MONEY MARKET OPERATIONS ARE CARRIED OUT AND THE MARKET INFORMED.

"SO FAR, THESE OPERATIONS HAVE TAKEN THE FORM OF DIRECT BORROWING OR LENDING, AND THE BUYING OR SELLING OF FOREIGN CURRENCY. THE SAME EFFECT COULD BE ACHIEVED THROUGH THE BUYING OR SELLING OF HONG KONG DOLLAR FINANCIAL ASSETS OF ACCEPTABLE QUALITY, MR JACOBS SAID.

H

"IN OTHER FINANCIAL CENTRES THESE ARE USUALLY IN THE FORM OF DEBT INSTRUMENTS ISSUED BY THE GOVERNMENT. SUCH INSTRUMENTS PROVIDE A FLEXIBLE, LOW RISK, AND POSSIBLY MORE COST-EFFECTIVE ALTERNATIVE FOR CONDUCTING MONEY MARKET OPERATIONS, HE ADDED.

"BUT THERE IS IN HONG KONG A LACK OF SUCH INSTRUMENTS BECAUSE THERE IS VIRTUALLY NO GOVERNMENT DEBT, HE SAID.

H

A STUDY OF THIS MATTER HAD BEEN CARRIED OUT AND INFORMAL CONSULTATION HAD BEEN HELD WITH THE HONG KONG CAPITAL MARKETS ASSOCIATION AND WITH LEADING BANKS, THE ADVICE OF THE EXCHANGE FUND ADVISORY COMMITTEE HAD ALSO BEEN SOUGHT.

"FOLLOWING UPON THIS CONSULTATION AND ADVICE, MY PRESENT INTENTION IS TO DEVELOP A PROGRAMME FOR THE ISSUE OF SHORT TERM EXCHANGE FUND BILLS.

"THE BILLS WOULD CONSTITUTE

DIRECT, UNSECURED, UNCONDITIONAL

AND GENERAL OBLIGATIONS OF THE GOVERNMENT EXCHANGE FUND.

FOR THE ACCOUNT OF THE

"GIVEN THAT THE BILLS WOULD BE USED FOR MONETARY THEY WOULD BE FOR THE ACCOUNT OF THE EXCHANGE FUND AND NOT GENERAL REVENUE AS IS THE CASE FOR TREASURY BILLS ELSEWHERE.

PURPOSES, FOR THE

FOR THE HE SAID,

"I MUST EMPHASISE THAT THE PROCEEDS COULD NOT BE USED PURPOSE OF FINANCING FISCAL DEFICITS OR PUBLIC EXPENDITURE, THE PROCEEDS WOULD BE SUITABLY INVESTED ALONG WITH OTHER ASSETS OF THE EXCHANGE FUND AND WOULD BE AVAILABLE ONLY FOR THOSE PURPOSES FOR WHICH THE RESOURCES OF THAT FUND MAY PROPERLY BE USED.

"IN OTHER WORDS, WE WOULD NOT BE BORROWING TO FINANCE PUBLIC EXPENDITURE," MR JACOBS EXPLAINED.

HE SAID OPERATIONAL DETAILS WERE STILL BEING WORKED OUT AND FURTHER DISCUSSION WOULD BE NEEDED WITH POTENTIAL MARKET MAKERS AND MARKET PARTICIPANTS ON SECONDARY MARKET DEVELOPMENT.

"OUR POLICY