ENG-1979 — Page 72

FINANCE AND ECONOMY

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maintained by the operations of the Exchange Fund in conjunction with the note-issuing banks. It weakened after the devaluation of the pound in November, 1967, and ended after the pound was allowed to float downwards in June, 1972. In the following month, the government decided to fix the exchange value of the dollar in terms of United States dollars. But in November, 1974, this link was broken as well and the Hong Kong dollar was allowed to float independently. Since then, its value has fluctuated according to market conditions. Appendix 5 sets out changes in the exchange value of the Hong Kong dollar from 1946 to November, 1974.

During 1979, the overall value of the Hong Kong dollar in terms of the currencies of its major trading partners, as measured by a trade-weighted index, declined by 0.5 per cent. At the end of 1979, its value was about 12.2 per cent lower than in the period immedi- ately before the dollar floated in November, 1974. The decline reflected the trade deficit, itself the product of more rapid growth in the domestic sector of the economy than in the export sector, and the weakness of the United States dollar against other currencies.

At the end of 1979 the middle market rate for the United States dollar was about HK$4.93 =US$1. Since 1973, transactions between Hong Kong and other countries have been free of all exchange control restrictions.

Money Supply and Credit

The money supply, defined to include all bank deposits and notes and coins held outside the banking system, rose by 30 per cent in 1979 to stand at $95,303 million at the end of December. A major factor influencing the growth of the money supply was the expansion of domestic loans and advances by banks, which rose by 40 per cent during 1979 to $73,690 million at the end of December.

Statistics from the deposit-taking companies became available for the first time in December, 1978. During 1979, public deposits with deposit-taking companies grew con- tinuously from $10,447 million to $24,495 million at the end of December. Their loans and advances rose from $10,139 million to $13,566 million. Banking statistics for the past three years and deposit-taking company statistics are shown in Appendix 12.

Banking

Banks are licensed in Hong Kong under the Banking Ordinance. The ordinance provides for their supervision and inspection by the Commissioner of Banking and imposes certain minimum requirements on capital and liquidity. Only licensed banks and representative offices of foreign banks may use the word 'bank'.

In March, 1978, the long-standing moratorium on the issue of new banking licences was eased. At that time, the Financial Secretary announced that favourable consideration would be given to applications for banking licences from well-established foreign banks which met a number of criteria relating to their size and background. In accordance with this policy, 41 banks from 12 countries had been granted a licence by August 7, 1979, when the grant of further banking licences was temporarily suspended to enable the government to review the criteria to be applied to future applications. At the end of 1979, there were 115 licensed banks, 1,011 banking offices and 114 representative offices of foreign banks. Finance companies - many of which are owned by foreign banks and other non-bank financial institutions which take deposits from the public are required to register under the Deposit-taking Companies Ordinance. At the end of 1979, 269 such companies were registered. They are subject to prudential supervision by the Commissioner of Deposit- taking Companies (this office is held by the Commissioner of Banking). During 1979, the

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