TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 236

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apart from the seasonal problems it would face*, there would be a major presentational difficulty in ensuring that the consequent inability of any bank with a Chinese depositor base to supply its customers with notes was accepted by those depositors as an act of government policy, and not as demonstrating an inability of the bank to meet its

obligations.

For political reasons which must be especially valid

at the present time, the Government would be very cautious about

running this risk.

If however the risk were run, and did not eventuate, one effect of the measure would presumably be to induce depositors to make more

use of cheques. So there would be a switch within banks from savings

accounts to current accounts, and perhaps a switch from short-term

deposits with deposit-taking companies to current accounts with banks. Both results would help banks' profitability, but would be likely to have little impact on depositors' expenditure.

Another effect of the measure would be to induce a switch to foreign

currency notes. This is discussed in 4 below.

I, A serusin to

2

a Colonial stigh Conway Bound could be thought

I note imme. Quite apart from probatical that this alternative world has injust both an

a conted

as and way of achieving Coin moduation, it would seem

NW

problems as the single means of achieving

of achieving crated by driest frismoment action.

Nothing positive would be achieved by restricting the supply of coin.

- 3 Banks' Clearing Accounts

It is difficult to see a simple way of restricting the supply of

HK$ balances to feed banks' clearing accounts.

This partly reflects

*It would be simple to allow for the expansion in the currency in the run up to Chinese New Year; but how would the Government enforce a subsequent reduction in the currency in circulation?