TNAG-0458-FCO40-523-Future-of-financial-and-economic-policy-of-Hong-Kong-1975 — Page 11

AIDE MEMOIRE

Monetary Management in Hong Kong

By a process of evolution in the past decade and earlier a

number of elements which would in other economies naturally fall within

the competence of a central bank or monetary authority (hereinafter

referred to as a central monetary institution, CMI) have fallen into

separate hands in Hong Kong:-

the Exchange Fund which holds the backing

for the note issue

some of the functions of the Hongkong &

Shanghai Banking Corporation: 80% of note

issue, clearing house, government banker,

banker to other banks and occasional lender

of last resort

the Banking Commissioner who may soon be

given some power to register finance

companies

the Banking Advisory Committee which, leaving aside the Chairman (the Financial Secretary)

and the Banking Commissioner, can be likened

to the non-executive members of a central

bank board

the Securities Commissioner

It would clearly be desirable for these various functions to

be drawn together and co-ordinated under one roof such as a CMI would

provide. There would also be advantages in interposing a "semi-

official" buffer between Government and the banking system and, more

particularly, in making the rest of the banking system less dependent

on the Hongkong & Shanghak Banking Corporation. The latter

relationship has disadvantages for both parties. On the one hand the

other banks feel at times that they are at the mercy of their main

commercial competitor. On the other, the responsibilities of the

Hongkong & Shanghai Banking Corporation towards the banking community and hence to the community at large could, even with the best will in the world, conflict with their duty towards their shareholders and