TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 238

1

7

5 Foreign Currency Clearing Balances

There is no way for the Hong Kong Government to control these, in the absence of exchange controls on the enterprises holding the foreign currency balances.

III

Conclusions

There is no satisfactory means of controlling the growth of the domestic money supply in Hong Kong, given the lack of Government debt and the absence of exchange control. The interest rate mechanism is an unsatisfactory second best, even when supplemented by the reverse open-market operations introduced in 1981. The currency board

seems t

approach offer no useful route for an economy, and a financial sector, as developed as those of Hong Kong.

September 1983

PWA