TNAG-2475-FCO40-3605-Hong-Kong-exchange-fund-report-and-accounts-for-1991-1992 — Page 12

CONFIDENTIAL

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4.

The Canadian dollar improved steadily against its US counterpart throughout the year primarily because of the tight monetary stance adopted by the Bank of Canada. This appreciation

lasted until the final quarter of the year when a major correction

to the Canadian dollar's up-trend took place.

5.

.

In the final weeks of 1991, the US dollar again came

under heavy selling pressure when the Federal Reserve Bank, in

response to the weakening state of the US economy, cut its discount rate by a full percentage point to 3.5%, the lowest level since

1964. At the same time, the Bundesbank, concerned about Germany's

money growth and high underlying inflation, tightened its monetary

policy and raised both its discount and Lombard rates by 1/2% to post-war highs of 8.0% and 9.75%.

"

6.

Overall, for the whole of 1991, the US dollar rose 1.76%

against the deutschemark, 3.54% against sterling, but fell by 7.79% against the yen, and 0.36% against the Canadian dollar. (See Table 1 on pages 5 and 6)

HONG KONG DOLLAR

7.

Notwithstanding the volatility caused by the Gulf War

crisis, the collapse of the BCC group and the subsequent unfounded

rumours in the banking sector, the market exchange rate of the Hong

Kong dollar remained stable against the US dollar throughout 1991, moving within a narrow range of HK$7.7190 to 7.8070 to US$1 and closing the year at HK$7.7860 (selling rate).

8.

This continued stability in the exchange rate is a

reflection of public confidence in the linked exchange rate system,

as strengthened by the introduction of the Accounting Arrangements

between the Exchange Fund and The Hongkong and Shanghai Banking

Corporation Limited and the Exchange Fund Bills Programme.

CONFIDENTIAL