TNAG-1724-FCO40-2437-Minutes-and-Hansards-of-the-Legislative-Council-of-Hong-Kong-1988 — Page 185

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Dr. Lam has asked what benefits flow from the

adoption of negative interest rates and what impact it

would have on Hong Kong. To the extent that negative

interest rates are designed to ensure stability in our

exchange rate, the effect is clearly beneficial.

other than speculators gains from volatile exchange

rates. The community of Hong Kong prefers stability.

No one

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Dr. Lam has also rightly drawn attention to the

possible downside effect of negative interest rates I was about to say "negative" effect, but then remembered

the algebraic implications. Of course, the Committee and

the Government recognise that negative interest rates, if

actually applied, would cause some disruption to the

business of banking. They may also cause friction between

banks and customers and impose an additional

administrative burden on banks. But we also recognise

that under the circumstances, negative interest rates may

become an unwelcome necessity if we are to defend

ourselves against wholly unwarranted speculation.

Sir,

Naturally, we all hope that it will not be

necessary to implement these arrangments for negative

interest rates, but if there is a need then undoubtedly we

will have to do so. Hopefully, any period of

implementation would be short and the disruption caused

would be temporary.