ENG-1982 — Page 76

FINANCIAL SYSTEM AND ECONOMY

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rates payable for maturities up to and including one year. However, with effect from March 1982, no limits apply on individual deposits in excess of $500,000 of less than three months term to maturity.

Apart from banks, no company may take deposits from the public unless licensed or registered under the Deposit-taking Companies Ordinance. Licensed status, which is granted at the discretion of the Financial Secretary, is reserved for larger companies which have a minimum issued share capital of $100 million and paid-up capital of $75 million, and which meet certain partially subjective criteria regarding size, ownership and quality of management. Licensed deposit-taking companies may take deposits from the public of any maturity, but in amounts of not less than $500,000. Since the status of licensed deposit-taking company was introduced in 1981, 22 licences have been granted.

Meanwhile there are 343 registered deposit-taking companies. Since April 1981, the Commissioner of Deposit-taking Companies has restricted new registrations to companies which, as well as meeting certain basic criteria such as minimum paid-up capital of $10 million, are more than 50 per cent owned by banks in Hong Kong or elsewhere. Registered deposit-taking companies are restricted to taking deposits in excess of $50,000 and of at least three months term to maturity. Neither registered nor licensed deposit-taking companies are subject to any restrictions on the rates of interest they offer.

The Commissioner of Banking, who is also the Commissioner of Deposit-taking Companies, exercises prudential supervision over all these institutions, as provided for by the Banking and Deposit-taking Companies Ordinances. Amendments made to these ordinances in 1982 empower him to obtain information on the overseas operations of Hong Kong banks and deposit-taking companies, so enabling him better to supervise their global activities and hence to play a full part in the increasingly important business of international banking supervision.

Foreign Exchange Market

Hong Kong abandoned the silver standard of its currency in 1935, when the exchange-value of the Hong Kong dollar was fixed at about 1s. 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. The following month, the government announced the pegging of the Hong Kong dollar to the United States dollar, with provision for fluctuations of up to 24 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 (see Appendix 5).

There is now a well developed foreign exchange market where the Hong Kong dollar and other currencies are traded, mostly against the US dollar. A number of factors contribute to the market's activity: there are no exchange controls; international banks may trade through their Hong Kong offices while other centres are closed; some banks or deposit-taking com- panies seek to buy foreign currency as a means of holding their obligatory liquidity, while others, without a sufficient local deposit base, seek to buy Hong Kong dollars in order to fund local lending. Some of these are features peculiar to Hong Kong. Meanwhile, as in other centres, the day-to-day requirements of industry and commerce themselves ensure a considerable turnover in both the foreign exchange and other financial markets.