TNAG-1729-FCO40-2442-Minutes-and-Hansards-of-the-Legislative-Council-of-Hong-Kong-1988 — Page 219

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Fiscal reserves are transferred to the Exchange

Fund against the issue of Debt Certificates. These Debt

Certi

tificates are interest-bearing and are held by the

Treasury.

In other words, fiscal reserves are invested in

Debt Certificates issued by the Exchange Fund, and these

investments earn interest as if the money were deposited

with a bank. Interest earned is credited to the general

revenue and is clearly, fully and publicly accounted for as

interest income under the revenue Head, Properties and

Investments in the same manner as, for example, profits tax under the Head, Internal Revenue.

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The rationale underlying the placing of fiscal

reserves on deposit with the Exchange Fund and not

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investing the money in, for example, Hong Kong stocks is

very simple. First, there is the security of the principal

sum; secondly, the reasonableness of the rate of return

offered; and, lastly, there is simply no other single

avenue for Hong Kong dollar investment of comparable

quality capable of absorbing the large amount of money

involved without adversely affecting monetary conditions.

It is possible, of course, for fiscal reserves to be

invested by the Treasury in foreign currency assets, but

then the general revenue will be assuming exchange risks.

The assumption of such risks would be improper. Indeed,

this was recognised in 1976 and as a consequence the

management of the foreign currency assets of the Government

Sir was transferred to the Exchange Fund. I believe that the

present arrangements are in the best interests of the

public.