PERSONAL AND CONFIDENTIAL
OBSERVATIONS ON THE BANK OF ENGLAND PAPER ON MONETARY MANAGEMENT IN HONG KONG
Personally, I think that the Bank of England paper is on the right lines in suggesting that a central monetary institution is an appropriate objective. Perhaps it is right, at this stage, to focus on the objective: for without a view on what the objective should be it is not easy to determine in what direction policy in this area should be pointed.
2. But there will be problems in working towards that objective, which are perhaps not sufficiently recognised in this paper. Although I would accept that there "would be advantages in interposing a "semi-official" buffer between Government and the banking system", and that a "neutral or disinterested judgement on a range of rather important issues would be valuable", my own very limited experience in Hong Kong leads me to suspect that neither of these propositions would necessarily be accepted as self-evident in Hong Kong.
3. Moreover, the setting up of a central monetary institution would of itself be a major institutional change; and it might in circumstances of considerable uncertainty be peculiarly difficult to avoid the impression that the Government had lost confidence in existing institutions and existing ways of handling these matters. It is well enough to say that "the statutes of a CMI for Hong Kong would need to be carefully designed to fit the local scene without generating unnecessary friction with vested interests": but I wonder whether even the most careful drafting can do the trick. There is also a reference to the importance of phasing the intro- duction of a central monetary institution, but in the context the impression left is that this refers to the phasing-in of an institution with powers specified ab initio.
4. My problem is that I am not sure that such a direct approach is likely to be conducive to the progress which I would like to see and which I believe would be in thɖinterests of Hong Kong. I believe that the merits of a central monetary institution have been urged by the Bank of England and others for some years: and although it might well be true that circumstances are now so different that there is greater receptivity to ideas of this sort, I would incline to doubt that thinking has moved so far and so fast that the case for a full-fledged CMI would command ready acceptance.
5. An alternative which may be worthy of consideration is whether it might be possible to creep up, as it were, on the objective. Can one, by taking a series of steps, each of which
/can
PERSONAL AND CONFIDENTIAL
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