TNAG-1773-FCO40-2525-Hong-Kong-Exchange-Fund-Hong-Kong-Futures-Exchange-Limited--1988 — Page 156

1988-07-15

16:27 MONETARY AFFAIRS BRANCH.

852 5 265 6146 P.13

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Would not the new arrangements arrect Hongkong Bank's central position in Hong Kong?

No, quite the contrary. Under the new arrangements, the Hongkong Bank has in effect been formally given the task as the agent for the conduct of monetary policy operations in Hong Kong. Monetary policy operations carried out by the Exchange Fund will be routed through the Account which Hongkong Bank now maintains with the Exchange Fund.

Does the Monetary Affairs Branch have the necessary resources to take on the additional role?

The new arrangements are very simple accounting arrangements which do not demand a lot of additional resources. The Monetary Affairs Branch will continue to call upon the services of commercial banks in Hong Kong, notably the two note-issuing banks.

Being now the ultimate provider of liquidity to the interbank market, the Exchange Fund has obviously assume a more important role in the monetary system of Hong Kong. Should the Exchange Fund be made more

accountable to the public?

In controlling the Exchange Fund, the Financial Secretary is advised by the Exchange Fund Advisory Committee. It is our intention that the Exchange Fund Advisory Committee should now also advise on the conduct of monetary policies. The Exchange Fund Advisory Committee consists of leading bankers and legislative councillors familiar with monetary affairs. They are in the best position to advise on such matters.

Is this a change to the monetary system of Hong Kong inconsistent with the provision in the Joint Declaration that "the monetary and financial systems previously practised in Hong Kong

shall be maintained"?

We are introducing new accounting arrangements within the existing monetary system of Hong Kong. This is not a change to the monetary system of Hong Kong. We are certainly maintaining the existing monetary system characterised by our linked exchange rate system. It needs to be appreciated that flexibility and change are necessary ingredients of any vibrant and developing financial centre.