TNAG-1652-FCO40-2300-Hong-Kong-Exchange-Fund-Ordinance-1987 — Page 4

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limit may be altered by the Legislative Council by

resolution with the approval of the Secretary of State.

The current limit of $30 billion was set by a resolution

of this Council on 9 December 1981. It was successively

raised during 1980 and 1981 from $7 billion to $30 billion

to accommodate the rapid build up of fiscal reserves then.

3.

Speaking in support of the last increase in the

borrowing limit to $30 billion on 9 December 1981, my

predecessor also described an arrangement whereby the

Exchange Fund conducts money market operations with a view

to influencing the level of interest rates in the

interbank market in a way consistent with monetary policy

objectives. This arrangement which remains in operation

and has been useful at times in exerting the appropriate

influence on interest rates, involves the Exchange Fund in

borrowing and lending in the interbank market. Depending

on market conditions and the specific objective, the

Exchange Fund may borrow long term money and lend short

term, or vice versa, or borrow or lend without matching

the transactions. Sums borrowed by the Exchange Fund in

the course of this arrangement must also fall within the

borrowing limit set by section 3(4) of the Exchange Fund

Ordinance.

/4. As at the