TNAG-0735-FCO40-939-Policy-objective-for-the-developing-of-Hong-Kong-in-the-1980-1978 — Page 150

(d)

Control of the money supply

30.

There has been some public discussion recently of the ways in which interest rates are determined by the banks. Indeed I, myself, have suggested that we should consider whether the present institutional arrangements for determining borrowing and lending rates in Hong Kong are now entirely relevant to our requirements. Part of my argument was based on the delays which might be caused by these arrangements in introducing desirable interest rate changes and, of course, the speed of the last change has proved to the discomfort, I am afraid, of some that rates can sometimes be changed

quickly.

-

31.

Under a fixed exchange rate regime the internal economy automatically adjusts to external circumstances via imbalances in the balance of payments triggering off a contraction or expansion, as the case may be, of the money supply. But under the novel circumstances represented by the floating exchange rate regime under which we now have to live, we need to have some means of protecting the economy from internally generated inflationary pressures. So I welcome this evidence of flexibility in the operation of present arrangements for determining interest rates. question of the determination of interest rates, obviously, must be given further thought. Meanwhile, I shall be watching the growth of the money supply very carefully and also considering what direct measures might be used to restrain the growth of the money supply as and when necessary; do not expect, at present, that such measures will have to be invoked and, before using them, I would have to satisfy myself that they would be equitable and predictable in their effect.

But the whole

but I

18

/(6) Management

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