XN000022-1991-04-24 — Page 9

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WEDNESDAY, APRIL 24, 1991

THE ACTING FINANCIAL SECRETARY SAID SINCE THE ANNOUNCEMENT OF THE RULES, THE MERE THREAT OF THE IMPOSITION OF NEGATIVE INTEREST RATES HAD, AS EXPECTED, PROVED TO BE EFFECTIVE IN DETERRING SPECULATION ON A REVALUATION OF THE HONG KONG DOLLAR, AND THERE HAD NOT BEEN ANY NEED TO INTRODUCE THESE RULES.

HOWEVER, DOURTS WERE EXPRESSED AT THAT TIME BY THE HONG KONG LAW SOCIETY, AMONGST OTHERS, AS TO THE LEGALITY OF THE MECHANISM FOR IMPLEMENTING NEGATIVE INTEREST RATES.

"THESE DOUBTS CENTRED ON WHETHER THE HKAB COMMITTEE HAD THE NECESSARY POWERS TO MAKE THE RELEVANT RULES, BEARING IN MIND THAT NEGATIVE INTEREST RATES WERE INTENDED PRIMARILY ΤΟ INFLUENCE THE EXCHANGE VALUE OF THE HONG KONG DOLLAR, MR MACLEOD SAID.

"QUERIES WERE ALSO RAISED AS TO WHETHER THE PASSING OF THE FUNDS COLLECTED BY HKAB ΤΟ THE FINANCIAL SECRETARY UNDER THE SPECIFIED RATE RULE CONSTITUTED AN INDIRECT TAX AND, THEREFORE, COULD NOT BE MADE UNDER THE ORDINANCE. '

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MR MACLEOD SAID THE LEGAL OPINION OF IIKAB'S OWN COUNSEL AT THAT TIME WAS THAT THE ORDINANCE AFFORDED SUFFICIENT AUTHORITY FOR HKAB TO ADOPT THE RULES CONCERNING NEGATIVE INTEREST RATES BECAUSE THEY DID RELATE TO "THE CONDUCT OF THE BUSINESS OF BANKING" AND WERE FOR THE GENUINE BANKING PURPOSE OF CURBING SPECULATION WHICH WOULD OTHERWISE CREATE CHAOS AND DISORDER IN THE BANKING SYSTEM.

THE LEGAL ADVICE THE GOVERNMENT OBTAINED CONCERNING THE PASSING OF FUNDS TO THE FINANCIAL SECRETARY WAS THAT THE INTEREST CHARGES, IF IMPOSED, WOULD BE IMPOSED BY HKAB UNDER ITS OWN RULES AND IT WOULD BE HRAB'S DECISION TO PAY THE AMOUNT COLLECTED TO THE FINANCIAL SECRETARY AS CONTROLLER OF THE EXCHANGE FUND AS A GIFT NOT AS A LEVY IMPOSED BY GOVERNMENT, HE SAID.

MR MACLEOD SAID THE HKAB HAD INTENDED ΤΟ SEEK A REVIEW ON WHETHER ITS ADOPTION OF THE RULES WAS VALID IN VIEW LAW SOCIETY'S DOUBTS.

AND

JUDICIAL OF THE

"PROCEEDINGS WERE ISSUED BUT LATER DROPPED BECAUSE THE LAW SOCIETY DID NOT WISH TO PROCEED WITH DEFENDING THE CASE.

"WHILST WE THINK IT LIKELY THAT DECLARATIONS, IF MADE, WOULD BE IN FAVOUR OF THE VALIDITY OF THE TWO SETS OF RULES, A RENEWED CHALLENGE MAY UNDERMINE THE EFFECTIVENESS OF THE RULES.

"IN THESE CIRCUMSTANCES,

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IT WOULD BE PREFERABLE TO ENACT LEGISLATION TO PUT MATTERS BEYOND DOUBT, MR

MACLEOD SAID, ADDING- THAT THIS WAS BEST DONE NOW, WHEN THERE WAS NO IMMINENT PROSPECT OF NEGATIVE INTEREST RATES HAVING TO BE IMPLEMENTED.

IN SUM, THE HONG KONG ASSOCIATION OF BANKS (AMENDMENT} BILL 1991 SOUGHT TO AMEND THE HKAB ORDINANCE ΤΟ PROVIDE THE ASSOCIATION WITH EXPRESS POWERS TO MARF RULES FOR THE IMPOSITION OF DEPOSIT CHARGES AND INTEREST CHARGES IN RESPECT OF HONG KONG DOLLAR DEPOSITS AND THE TRANSFER OF THE INTEREST CHARGES TO THE EXCHANGE FUND.

/TO ENSURE