TNAG-1259-FCO40-1599-The-Future-of-Hong-Kong---special-study-by-FCO--August-1982--1983 — Page 111

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4.

The Exchange Fund is responsible for regulating

the foreign exchange value of the Hong Kong dollar on

behalf of the Government. In addition to assets held as

currency backing, it holds all other official foreign

currency reserves of the colony and the bulk of the

Government's HK$ balances. As at end-December 1982,

total assets of the Fund amounted to some HK$37.9 billion

(including assets held as currency cover): external assets

amounted to HK$31.5 billion. Because of the absence of

conventional domestic reserve assets in the form of

Government debt in Hong Kong, the banking system also holds

substantial net foreign exchange assets (HK$11.9 billion

at end-1981), concentrated mainly in the note-issue

banks, particularly HSBC: foreign assets constitute the

residual liquidity of the banking system as a whole.

Hong Kong Dollar

5. The Hong Kong dollar was linked to sterling until June

1972 and to the US dollar between 1972 and November 1974.

Since the latter date it has floated independently

according to supply and demand in the market, with the

Exchange Fund intervening on occasion to moderate

disorderly movements.

Balance of Payments and Debt

6. Hong Kong has a very open economy, with exceptionally

high dependence on external trade and capital flows, and

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/imposes