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20.
Intervention is subject to resource constraints.
On the stronger side of 7.80, the resources required
are Hong Kong dollar balances.
To the extent that HSBC
is able to make available Hong Kong dollar balances to
the Exchange Fund, there has been no real constraint.
But the point may be reached at which the distortion
this causes to HSBC's balance sheet may become a constraint.
21.
The constraint is potentially more serious
when there is a need to intervene on the weaker side
of 7.80 by selling US dollars. The immediately available
foreign currency resources of the Exchange Fund which
are available for intervention are limited, though more
can be mobilised over a relatively short period of time.
22.
Turning to the less than short term adjustments
under the linked exchange rate system, the experience
has also not been entirely consistent with theory. The
transmission mechanism whereby pressure generated by
a shift out of or into the Hong Kong dollar is transmitted
into adjustments in interest rates is not entirely smooth.
For example, a switch out of Hong Kong dollars does not
necessarily lead to a reduction in the availability of
Hong Kong dollars in the interbank market and interest
rates. As illustrated in Annex IV, such availability
/is
G.F. 316
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