XN000022-1997-01-15 — Page 58

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Linked exchanged rate system

Following is a question by the Hon Christine Loh Kung-wai and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):

Question:

At present, the linked-rate system linking the exchange rate of the Hong Kong dollar to the United States dollar is an administrative practice and is not enshrined in law. As Article 111 of the Basic Law stipulates that the issue of Hong Kong currency must be backed by a 100 per cent reserve fund and that the system regarding the issue of Hong Kong currency and the reserve fund system shall be prescribed by law, will the Administration inform this Council whether it plans to introduce legislation establishing the linked exchange rate system on a firm legal basis before 30 June 1997; if not, why not?

Reply:

We have already met the requirements of Article 111 of the Basic Law referred to in the question. The Exchange Fund Ordinance provides for the legal framework for the reserve fund system. Section 4(1) of the Ordinance requires note-issuing banks to pay to the Financial Secretary for the account of the Exchange Fund the face value of the bank notes they issue or the equivalent in foreign exchange against a certificate of indebtedness issued by the Financial Secretary which they hold as backing for their note issue. Section 3(3A) of the Ordinance stipulates that the value of any coinage issued shall be credited to the Exchange Fund. This provides that the face value of the coins will go to and in effect be backed by the Exchange Fund. The Legal Tender Notes Issue Ordinance and the Coinage Ordinance respectively provide for the legal framework for the issue of legal tender notes and coins in Hong Kong.