XN000022-1995-01-11 — Page 21

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In order to reflect more fully the original spirit of section 8, I propose to clarify and tighten the conditions under which a transfer from the Fund can be made. The proposed amendment requires that the Financial Secretary must satisfy himself that his ability to achieve the purposes of the Fund laid down in the Ordinance will not be adversely affected before he can make a transfer. Furthermore, instead of listing out the items for which 105 per cent asset backing is required, all obligations for the account of the Exchange Fund will need to be so backed by assets before a transfer can be made. It is also proposed that the Governor in Council should replace the Secretary of State as the approving authority for such transfer. Consultation with the Exchange Fund Advisory Committee will continue to be required.

In introducing these amendments to section 8 of the Ordinance, I must point out clearly that I have no intention to make any transfer. In my opinion as Financial Secretary, a sizable Exchange Fund is crucial to our ability to deliver monetary and financial stability in the transitional period. I simply cannot foresee that the conditions allowing a transfer from the Fund under section 8, if amended, would exist in the next few years.

Let me now briefly mention the fifth aspect of the Bill. As Members know, the issue of bank notes in Hong Kong is backed by the Certificates of Indebtedness issued by the Exchange Fund. At present, the issue and redemption of such certificates involve physical delivery. With a view to improving the efficiency and security of the process, the Bill contains provisions for the issue and redemption of these certificates to be handled through computerized book entries.

Last but not least, the Bill transfers to the Hong Kong Government certain powers over the control of the Exchange Fund which are presently vested in the Secretary of State in the UK Government. These changes are made in a manner which is fully consistent with the relevant provisions in the Joint Declaration and the Basic Law.

Mr President, the Bill is an important piece of legislation which will provide an up-to-date and more robust legal framework for our monetary management and for the prudent management of the Exchange Fund. The enhanced autonomy in the control of the Fund so vested in the Hong Kong Government will also contribute to a smooth transition to 1997.

End/Wednesday, January 11, 1995