CONFIDENTIAL
I HONG KONG MEASURES OF CONFIDENCE
A
The Balance of Payments and the Flow of Funds
1. This note considers possible measures of confidence in Hong Kong.
Section A (paras. 2-9) sets out an accounting framework, to help to
clarify the measuring of the various measures proposed. It briefly
sets out how balance of payments, flow of funds and monetary measures
relates to one another. Paras. 10-11 then identify possible
meanings of 'capital flight' within the framework. Section B (paras 12-13) notes the small - extent to which figures are
actually available in Hong Kong. Section C (paras. 14-18) discusses
the usefulness of the measures proposed and Section D (paras. 19-20)
gives conclusions.
2. The balance of payments is a record of all financial transactions
(over a given period of time) between the residents of a country and
non-residents.
3. Table I (attached) shows the standard IMF framework for a set
of balance of payments accounts for a country, and some other
indentities and definitions that are sometimes employed. The principal distinction that underlies such conventions is between
financial transactions that just give rise to immediate purchasing
power somewhere (current transactions) and those which relate to
borrowing and lending, ie changes in ownership of assets (capital
transactions).
4.
If Hong Kong runs a current account deficit (ie imports of goods
and services are greater in value than exports) then current receipts
from overseas are lower than current expenditure, and the difference
must give rise to a net increase in claims on Hong Kong residents by
the rest of the world. This borrowing (or reduction in lending
abroad) to finance expenditure in excess of income will be captured
in the capital account section of the balance of payments.
CONFIDENTIAL
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