SECRET
REQUEST, PROVIDD FUNDS TO AVERT LIQUIDITY CRISES IN HHE BANKING SYSTEM. BECAUSE OF ITS OWN POSITION AT THE CENTRE OF THE CLEARING SYSTEM AND ITS ROLE AS A NOTE-ISSUING BANK, HSBC IS ITSELF HIGHLY UNLIKELY TO COME UNDER PRESSURE WITH PESPECT TO ITS HK DOLLARS LIQUIDITY. SHOULD IT FACE DIFFICULTIES, HOWEVER, IT WOULD BE THE HONG KONG GOVERNMENT (AS IT INDICATED TO THE MONOPOLIES COMMISSION IN HHE ROYAL BANK OF SCOTLAND ENQUIRY) WHICH WOULD ACT AS LENDER OF LAST RESORT TO THE SYSTEM, USING THE ASSETS OF THE EXCHANGE FUND. EFFECTS OF A CRISIS
?
9. IN PRACTICE A SIMPLE LIQUIDITY CRISIS IN HONG KONG WOULD BE A MATTER AFFECTING INDIVIDUAL BANKS AND CONTAINABLE WITHIN THE ESTABLISHED MACHINERY. IT IS ALSO POSSIBLE TO ENVISAGE MORE SERIOUS DOMESTIC ECONOMIC PROBLEM INVOLVING THE SOLVENCY OF THE BANKING SYSTEM, SUCH AS A PROPERTY COLLAPSE OR OTHER MAJOR ECONOMIC UPSET. IN PRACTICE THIS COULD BE CONTAINABLE BUT IT COULD AFFECT EXTERNAL CONFIDENCE TOO. A MORE SERIOUS THREAT
TO THE SYSTEM AS A WHOLE COULD RESULT FROM A MAJOR SHIFT OUT OF HONG KONG DOLLARS ALTOGETHER SUCH AS MIGHT BE STIMULATED BY WORRIES ABOUT RELATIONS WITH CHINA. THIS WOULD BRING ABOUT A NET WITHDRAWAL OF DEPOSITS AND NOT SIMPLY A TRANSFER FROM ONE BANK TO ANOTHER, AS WELL AS AFFECTING THE EXCHANGE RATE FOR THE HONG KONG DOLLAR. IN OTHER WORDS, THE CRISIS WOULD BE A FOREIGN EXCHANGE CRISIS AND THE EXCHANGE FUND'S COMMITMENT AS LENDER OF LAST RESORT WOULD BE TO ACT AS FOREIGN EXCHANGE DEALER OF LAST RESORT - STANDING READY TO USE ITS FOREIGN EXCHANGE ASSETS TO PURCHASE HONG KONG DOLLARS. HOWEVER THE EXCHANGE FUND ASSETS - SOME 3 MONTHS IMPORTS- ARE NOT GREAT, ALTHOUGH THEY HAVE RISEN SUBSTANTIALLY IN HHE PAST TWO YEARS.
10. THE FUND'S INTERVENTION IN THE EXCHANGE MARKETS HAS IN THE PAST BEEN AIMED AT MODERATING DISORDERLY FLUCTUATIONS ROUND THE PERCEIVED TREND LEAVING THE TREND IN THE RATE TO BE DETERMINED BY MARKET FORCES. IN HHE EVENT OF A MAJOR CRISIS, IT MIGHT BE EXPECTED TO REACT BY MORE SUBSTANTIAL INTERVENTION OR EVEN MORE RADICAL MEASURES. SHOULD ITS RESOURCES BE INSUFFICIENT, THE HONG KONG GOVERNMENT HAS POWERS TO BORROW ABROAD, ON THE SECURITY OF THE GENERAL REVENUE OF THE COLONY, FOR THE ACCOUNT OF THE FUND. IN NORMAL CIRCUMSTANCES, THE HONG KONG GOVERNMENT, WITH MINIMAL EXTERNAL DEBT AND A SUBSTANTIAL FISCAL SURPLUS, WOULD BE REGARDED AS A PRIME BORROWER. HOWEVER, SHOULD ITS BORROWING CAPACITY BE IMPAIRED BY POLITICAL AND ECONOMIC UNCERTAINTY, IT MIGHT APPLY TO HMG FOR GUARANTEES ON ITS BORROWING.
RELATIONSHIP WITH INTERNATIONAL FINANCIAL ORGANISATIONS
11. HONG KONG IS NOT A MEMBER OF THE MF OR IBRD (WORLD BANK) FOR WHICH RESPONSIBILITY FOR ONE'S OWN EXTERNAL RELATIONS IS A CONDITION OF MEMBERSHIP - BUT IS A MEMBER OF THE ASIAN DEVELOPMENT BANK (ADB) FOR WHICH IT QUALIFIES BY VIRTUE OF BEING AN ASSOCIATE MEMBER OF THE UN ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC (ESCAP). BECAUSE HONG KONG IS NOT RESPONSIBLE FOR ITS EXTERNAL RELATIONS, ITS MEMBERSHIP OF THE ADB IS CONDITIONAL ON HMG ASSUMING RESPONSIBILITY FOR ALL ITS OBLIGATIONS TO THE BANK,
- 3 SECRET
/INCLUDING
Page 300Page 301
No comments yet.
Private notes are available after approval.