TNAG-1483-FCO40-2037-Economic-situation-in-Hong-Kong-1986 — Page 42

Introduction

CHAPTER 3 : THE FINANCIAL SECTOR

3.1

Compared with

the first

of 1986, half

third

the

quarter saw a general acceleration in the growth rates of the money supply (paragraph 3.9), of deposits (paragraphs 3.3 and 3.4) and of loans and advances by deposit-taking institutions (paragraph 3.10). During the third quarter, higher interest

for offered

and the deposits in foreign currencies

major

some

currencies have

led to

a

larger

rates

of strength increase in foreign currency deposits relative to Hong Kong dollar deposits (paragraph 3.4). At the same time, the shift in deposits from deposit-taking companies to banks continued (paragraph 3.5).

3.2

The exchange rate of the Hong Kong dollar against

dollar the US

remained stable around the linked

HK$7.80 to US$1

(1)

during the third

rate

of

quarter.

However,

/reflecting

(1)

Currency notes in circulation are issued by the two note-issuing the banks the Hongkong and Shanghai Banking Corporation and Standard Chartered Bank Ltd. - against holdings of Exchange Fund certificates of indebtedness. Prior to 17 October 1983, certificates of indebtedness were issued and redeemed against payment in Hong Kong dollar. Under the present linked exchange rate system, such payments are made in US dollar, at a fixed exchange rate of US$1 = HK$7.80. The note-issuing banks in turn extend this fixed rate to all banks in Hong Kong in respect of their dealings with them in currency notes. In the foreign exchange market, the exchange rate of the Hong Kong dollar continues to be determined by market forces. But operating against the background of the fixed rate for certificates of indebtedness, these forces tend to bring the rate in the foreign exchange market close to this linked rate of HK$7.80 to US$1.

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