TNAG-2471-FCO40-3595-Confidential-talks-between-the-UK-and-China-regarding-financ-1992 — Page 154

0.1

The

A.1

CONFIDENTIAL

Annex III

Q & A

Government had

previously

refused to

disclose the size of the Exchange Fund on the

grounds that it would impinge on its effectiveness to conduct monetary operations.

Why did the Government change its mind and

decide to publish the information now?

With sound monetary system built up over the

years through various reform measures, the

ability of the Government to maintain monetary stability has been enhanced considerably. For

example, the Accounting Arrangements with HSBC introduced in 1988 have since proved to be an

effective tool for the Exchange Fund to influence interbank liquidity

liquidity for the purpose of maintaining exchange rate stability. Exchange Fund Bills, which were launched in

1990, also provide an additional instrument for

conducting money market operations. Monetary stability in Hong Kong is now not dependent upon the size of the Exchange Fund. We are

confident that the disclosure of the size of

the Exchange Fund would not affect our ability

to ensure monetary stability. Moreover, it is in line with the international practice [and

the recommendation of the IMF] to publish information concerning foreign currency

it would be timely to

reserves.

Lastly,

CONFIDENTIAL

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