TNAG-2471-FCO40-3595-Confidential-talks-between-the-UK-and-China-regarding-financ-1992 — Page 139

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There

accountability,

7.

public

and

is nevertheless a lack of public evidenced by increasing pressure from the Legco for greater transparency and accountability

the operations of the Exchange Fund, As knowledge by the generality of the public and Legco members on matters basically concerning central banking is limited, the focus of their attention has been generally on the size of the Exchange Fund. The Fund being Hong Kong people's money, they demand the right to know about how much is there.

It is of course the duty of a responsible

government. as far as possible to meet such demand.

8.

Secondly, disclosure of relevant information on the Fund will help to demonstrate the financial strength of. Hong Kong. Pressure to disclose the accumulated earnings (the 30 called "core" part of the Exchange Fund) is likely intensify in the coming months regardless of the outcome of the PADS talks with the Chinese. If agreement is. reached to proceed with the projects, disclosure of the information will likely give a high degree of comfort to investors.

9.

Thirdly, disclosure will also be a demonstration of confidence on monetary management in Hong Kong, with a sound monetary system built up over the years through various reform measures, the ability of the authority, tos maintain monetary stability has been considerably enhanced. It is no longer necessary to rely on the mystery. surrounding the size of the Exchange Fund to assist-in: ensuring exchange rate stability. Under present monetary arrangements, the size of the Fund as a figure has very little significance on monetary stability other than perhaps on a psychological level. A technical analysis of: the relevance of the size of the Exchange Fund to monetary management is at Annex II of this paper.

CONFIDENTIAL

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