1988-07-15 16:26 MONETARY AFFAIRS BRANCH.
852 5 865 6146 P.12
Q.
A.
Q.
A.
2.
A.
Does this not amount to the setting up of a Central
Bank?
No. The new arrangements, unique to Hong Kong, enhance the Government's ability to influence the availability of money in the interbank market and interbank interest rates and thus to assist it better to maintain exchange rate stability within the framework of the linked exchange rate system. It is true that central banks and monetary authorities have the same ability but they have different and rather more complex arrangements requiring the existence of an independent institution. There is no such institution in Hong Kong. The Monetary Affairs Branch is part of the Government, not a bank. It does not have banking functions, and it does not carry out banking business.
[Note: Do not use the term "money supply". It has a special technical meaning. With a fixed exchange rate, we do not and should not be seen to be trying also to control the money supply.]
Does the introduction of the new arrangements not suggest that the link has not been working well2
No, the link exchange rate system has been working well, as confirmed by the stability in the exchange rate at around 7.80 in the past almost five years, against the background of high volatility in world exchange markets. But no system can be perfect and we must of course not be complacent. Any healthy financial market will continue to evolve. It is therefore prudent for us to review the operation of our system from time to time to see whether there can be improvements so that we can even more effectively maintain exchange rate stability.
Would not the new arrangement free Hongkong Bank from taking account of the public interest in running its commercial affairs?
+
The new arrangements ensure that Hongkong Bank's commercial activities will no longer inadvertently affect monetary conditions adversely. In that sense Hongkong Bank will be less constrained in its conduct of its affairs and will thus be more free to pursue its own commercial objectives in the foreign exchange and money markets. This does not mean that Hongkong Bank will be acting against the public interest merely that it will no longer need to be concerned that its activities will adversely affect monetary stability. The Hongkong Bank has also made it clear that what is good for Hong Kong is good for the bank. It is in that spirit that the new arrangements were developed, jointly between the Government and the Bank.
10.
No comments yet.
Private notes are available after approval.