TNAG-1726-FCO40-2439-Minutes-and-Hansards-of-the-Legislative-Council-of-Hong-Kong-1988 — Page 327

HONG KONG LEGISLATIVE COUNCIL - 3 February 1988

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effect

Dr. LAM has also rightly drawn attention to the possible downs. 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.

Naturally, Sir, 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.

Members will have observed that the mere threat of implementing negative interest rates has apparently been effective in deterring recent speculation. (The exchange rate is now happily at around the $7.80 mark and interbank Hong Kong dollar interest rates have gradually been firming up as speculators unwind their positions at considerable loss to themselves.)

DR. LAM: Sir, how can the Government prevent switching of Hong Kong dollar deposits from Hong Kong to other offshore financial centres such as Singapore to avoid the impact of negative interest?

FINANCIAL SECRETARY: Sir, well the short answer to that is we can not prevent it. We are, as Dr. LAM knows, a very open economy and we have a very open monetary system so people could in fact shift their deposits around. But if they

do so, it may render them slightly less nimble if they are indeed speculators.

MR. MARTIN LEE: Sir, although the Financial Secretary has not given us an advance copy of his oral answer, I have given him a courtesy advance copy of my supplementary question in three parts. Will the Financial Secretary please confirm that all the proceeds to be collected by banks from Hong Kong dollar deposits arising from the imposition of negative interest rates will go to the Government? And, if so, is this not in the nature of a tax rather than a banking charge provided for in section 12(1)(e) of the Hong Kong Association of Banks Ordinance? And will the Financial Secretary please explain why this Council has been bypassed by the Government in its imposition of this indirect tax?

FINANCIAL SECRETARY: I thank Mr. Martin LEE for his courtesy in giving me an advance copy of his supplementary. I am afraid that I did not have time to give a copy of the main answer, which of course took some time to prepare. In any event, I have the greatest confidence in Members of this Council in asking supplementaries without having an advance copy of the main answer.

If, Sir, I could take the last part of the question first, that is to say, why has this Council been bypassed by the Government? Well, heaven forbid that we