TNAG-2471-FCO40-3595-Confidential-talks-between-the-UK-and-China-regarding-financ-1992 — Page 74

CONFIDENTIAL

2

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Monetary operations currently influence interbank interest rates only indirectly, through influencing the availability of interbank liquidity. But experience in the past few

years indicates that HKG's actions to influence the

availability of interbank liquidity can be frustrated by

manipulation by one or other of the large players if they So wish, to the extent that the necessary response in-

interbank interest rates to HKG's actions may not be forthcoming or may be considerably delayed. LAF would-

resolve this.

market

5.

development as

International

Secondly, HKG feels that there is a need to uphold a high level of integrity in the Hong Kong dollar interbank

market. This is very important for Hong Kong's continued

an international financial centre.

banks must be satisfied that there is a level

playing field in the Hong Kong dollar interbank market and

that the market is not subject to the possibility of unfair manipulation if they are to continue to expand their business in Hong Kong. The current perception of some- market participants is that liquidity management can be. quite a difficult and costly task, and that the big players have an unfair advantage. Be this as it may, the interbank market must be effective in channelling liquidity fairly from those banks who have a surplus in it to those who are:

in need. LAF would achieve this.

8 February 1992

office of the Exchange Fund

CONFIDENTIAL

P: 3.