XN000022-1997-01-22 — Page 52

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Mandatory Provident Fund

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

Question:

It is learnt that the Administration has proposed that a specified proportion of the Mandatory Provident Fund (MPF) is to be denominated in Hong Kong dollar. In this connection, will the administration inform this Council:

(a)

(b)

(c)

Answer:

(a)

(b)

of the percentage of the MPF which it has proposed to be held in Hong Kong dollar;

of the objective of imposing the above restriction, and whether such a restriction in effect imposes a ceiling on the MPF's exposure to foreign currency; and

whether such a restriction contravenes Article 112 of the Basic Law which stipulates that the Hong Kong Special Administrative Region will not adopt foreign exchange controls?

It has been proposed that the percentage of the MPF assets to be held in Hong Kong dollar should be 30%. Nevertheless, hedging of foreign currency assets into Hong Kong dollars is allowed for the purpose of determining compliance with the limit.

The objective of imposing such a requirement is to protect the contributors and pensioners against excessive currency risk. It is also a prudential measure designed to ensure that MPF funds are so managed that they will have adequate Hong Kong dollar assets on their balance sheet to meet their predictable Hong Kong dollar obligations, given that most MPF beneficiaries will retire in Hong Kong.

While such a requirement effectively imposes a ceiling on the MPF's exposure to foreign currency, through hedging of the foreign currency assets into Hong Kong dollars, a scheme could have all its assets invested in foreign currency assets provided that there is appropriate currency forward contracts in place to convert foreign currency into Hong Kong dollars.