SECRET
4 On the publication of details of the Exchange Fund, we have
received the relevant Exchange Fund Advisory Committee papers, for
which thanks. In general we have no argument with the pros and
cons contained therein and no problem with publication in the format proposed. It seems that the Chinese would not object (indeed, they seem more likely positively to welcome it) and the IMF have been pressing for it. It is unusual for a major trading
country and financial centre not to publish some form of reserves figure and Hong Kong is proposing to publish theirs only annually and, if I understand the proposal correctly, six or seven months in
arrears. After the excitement of the first numbers, this should
hardly be likely to raise any eyebrows and so long as the numbers look good, which they do at present, publication should add to
confidence.
5 As the EFAC paper explains, the overall size of the Exchange Fund is not in itself relevant. The headline number, presumably, equivalent to gross reserves, will be the total foreign currency assets (HK$192.3 bn at end-1990). Any confidence boost is likely
to come from this. The more interesting number perhaps, equivalent to the "net" or "free" reserves of Hong Kong, will be the sum of
Fiscal Reserves, Accumulated Investment Surplus and Unrealised
Exchange and Investment Gains. The last two of these can also be
expected to catch the headlines, since so far as I am aware, they are the only items which have not been published before. All the
other major items on the liabilities side are already known or
available elsewhere.
6 With the likelihood of budget deficits in the future as a
result of expenditure on the Airport scheme, it can presumably be expected that the figure for Fiscal Reserves will show a fall over
the next few years. As you are aware, the Hong Kong government have given an undertaking to the Chinese that this item will not fall below HK$25 bn without prior consultation. It will presumably, therefore, be watched with interest.
7 It might be worth clarifying with Hong Kong precisely what they
intend to publish when. The Exchange Fund accounts appear to be audited in July. I assume, therefore, that the Budget Speech in
2
No comments yet.
Private notes are available after approval.