ENG-1969 — Page 76

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FINANCIAL STRUCTURE

country's total official external reserves, in return for the under- taking by them to maintain a minimum proportion of their reserves in sterling (roughly the proportion existing when the offer was made; for Hong Kong this was 99 per cent). The guarantee is for five years from September 25, 1968. Hong Kong accepted this new scheme in place of the Hong Kong bond scheme, and arrangements were introduced early in 1969, through the mechanism of the Exchange Fund, to bring within the cover of the guarantee a substantial part of that part of the Colony's sterling reserves which are held by the banking system in the absence of a central bank. While the guarantee remains in force, the Hong Kong dollar is automatically protected from the effects of any change in sterling exchange rates so far as its capital assets are concerned. This does not mean, however, that the value of the Hong Kong dollar could necessarily be maintained if such an event was followed by sub- stantial devaluations by Hong Kong's trade competitors to the detriment of her trading position.

BANKING

Banking business in the Colony is licensed by the Government and carried on subject to the provisions of the Banking Ordinance, which deals with the supervision of banks and requirements of minimum capital and reserves, liquidity ratios, limitations on the holdings of certain classes of assets, and control over the opening of branches. Monthly returns are made by all banks to the Com- missioner of Banking, who makes regular inspections.

Despite the strong attraction of high interest rates in the Euro- dollar and Sterling currency markets, bank deposits in the Colony increased again during 1969 to reach a new record figure of $12,297 million at the end of the year. This increase was achieved with no increase in deposit rates of interest such as was necessary in some other financial centres, and represented a rise of 18.6 per cent over the previous year-end figure.

Loans and advances increased to $7,884 million and, as a percentage of bank deposits, amounted to 64.1 per cent at the end of the year, compared with 58.2 per cent at the end of 1968.

At the end of 1969 there were 70 incorporated banks in the Colony with a total of 362 banking offices: the former decreased