XN000022-1994-12-23 — Page 12

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First, the bill seeks to provide the Financial Secretary with the statutory power to require any authorised institution to maintain an account with the Monetary Authority for the account of the Exchange Fund. This proposal will provide statutory backing for the "Accounting Arrangements", a crucial monetary reform measure introduced in 1988.

The "Accounting Arrangements" is a contractual agreement between the Financial Secretary as the Controller of the Exchange Fund and the Hongkong and Shanghai Banking Corporation Limited (HSBC) as the Management Bank of the Clearing House of Hong Kong Association of Banks.

Under the Accounting Arrangements, HSBC is required to maintain an account with the Exchange Fund and to manage the net clearing balance of the rest of the banking system in such a way that it will not exceed the balance in its account with the Exchange Fund.

Through the Accounting Arrangements, the Government has acquired an effective monetary management mechanism to influence the level of interbank liquidity and hence interbank interest rates, thereby greatly improving the Government's capability to deliver exchange rate stability.

"The proposed change will also facilitate the implementation of a new and more robust interbank payment system which will involve all licensed banks opening clearing accounts with the Monetary Authority," the spokesman said.

Secondly, the bill seeks to widen the investment ambit of the Exchange Fund such that the Financial Secretary can enter into any financial arrangements for the prudent management of the Fund, after consulting the Exchange Fund Advisory Committee.

Thirdly, the bill contains provisions that would remove an impediment for the Exchange Fund to raise funds in short notice when circumstances warrant.

Under the existing provisions, the Financial Secretary may borrow for the account of the Fund on the security of any asset held by the Fund or on the general revenue, but such secured borrowings are subject to a limit stipulated in section 3(4).

The bill disapplies the borrowing limit to borrowings secured on the Fund's assets. The borrowing limit will, however, continue to apply to Exchange Fund's borrowings which are secured on the general revenue.

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