ENG-1980 — Page 77

FINANCIAL SYSTEM AND ECONOMY

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Coins of $5, $2, $1, 50 cents, 20 cents, 10 cents and five cents denominations, and currency notes of one cent denomination, are issued by the government. The fifth of a series of $1,000 gold coins minted to commemorate the Chinese Lunar New Year was issued early in 1980. These gold coins are legal tender, but do not circulate. The total currency in circulation at the end of 1980, and details of its composition, are shown in Appendix 11.

Hong Kong abandoned the silver standard of its currency in 1935, when the exchange value of the Hong Kong dollar was fixed at about Is. 3d. sterling (or $16 to £1). With the setting-up of the International Monetary Fund after World War II, the Hong Kong dollar was given a gold parity reflecting this pre-war rate. The relationship between the Hong Kong dollar and sterling was, however, at no time a statutory one but was established and maintained by the operations of the Exchange Fund in conjunction with the note-issuing banks. The relationship weakened after the devaluation of the pound in November, 1967, and ended after the pound was allowed to float in June, 1972. In the following month, the government announced the pegging of the Hong Kong dollar to the United States dollar, with provision for a fluctuation of two and a half per cent either side of the central rate. But in November, 1974, this link was broken as well. Since that time, the Hong Kong dollar has floated independently according to market conditions. Appendix 5 sets out changes in the exchange value of the Hong Kong dollar from 1946 to November, 1974.

The effective exchange rate of the Hong Kong dollar, calculated against the currencies of Hong Kong's 15 most important trading partners, moved from 92.7 on December 31, 1979 (December 18, 1971-100) to 88.2 on December 31, 1980. Against the United States dollar, the Hong Kong dollar moved from 4,960 on December 31, 1979, to 5.140 on Decem- ber 31, 1980.

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