ENG-1983 — Page 70

THE ECONOMY

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the public, but in amounts of not less than $500,000. At the end of 1983, there were 30 licensed deposit-taking companies.

Registered deposit-taking companies are restricted to taking deposits of $50,000 or more with an original term to maturity of at least three months. The authority to register deposit-taking companies rests with the Commissioner of Deposit-taking Companies. Since April 1981, the commissioner has, at the direction of the Governor, 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. At the end of 1983, there were 319 registered deposit-taking companies.

The Commissioner of Banking, who is also the Commissioner of Deposit-taking Companies, exercises prudential supervision over all institutions in this three-tier structure, as provided for by the Banking and Deposit-taking Companies Ordinances. Amendments made to these ordinances in 1983 provide an improved and somewhat tougher regulatory environment for financial institutions, and enable information obtained during supervisory duties to be released for criminal investigation and proceedings. The commissioner's office includes a small, but active, international division which obtains monthly returns from the overseas branches of Hong Kong incorporated banks and deposit-taking companies, and sends teams overseas to examine such branches (where this is permitted by the local authorities).

Exchange Fund and Currency

The Hong Kong Government Exchange Fund was established by the Currency Ordinance of 1935 (later renamed the Exchange Fund Ordinance). From its inception, the Exchange Fund has held the backing to the note issue, with notes being issued by the two note-issuing banks - The Hongkong and Shanghai Banking Corporation and the Chartered Bank against their holdings of certificates of indebtedness. These are non-interest-bearing liabilities of the Exchange Fund, and are issued or redeemed as the amount of the notes in circulation rises or falls. In 1976, the assets of the Coinage Security Fund (which held the backing for coins issued by the government) as well as the bulk of the foreign currency assets held in the government's General Revenue Account were transferred to the fund. In both cases, the transfers were made against the issue by the fund of interest-bearing debt certificates denominated in Hong Kong dollars. On December 31, 1978, the Coinage Security Fund was merged with the Exchange Fund and all the certificates held by the Coinage Security Fund were redeemed.

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The Exchange Fund was further expanded in 1978 when the government began to transfer the Hong Kong dollar balances of its General Revenue Account (apart from working balances) to the Exchange Fund against the issue of interest-bearing debt certificates. Thus the bulk of the government's financial assets are now held in the Exchange Fund. Today, the principal role of the fund is to manage these assets although it retains the power as defined in the Exchange Fund Ordinance to influence the exchange value of the Hong Kong dollar. The Exchange Fund is managed by the Monetary Affairs Branch under the direction of the Financial Secretary, who is also advised by an advisory committee which includes prominent members of the banking community. The fund's assets are held in bank deposits in Hong Kong dollars and in certain foreign currencies, and in various interest-bearing instruments in foreign currencies.

Another function related to the fund is the supply of notes and coins to the banking system. Currency notes in everyday circulation are $10, $50, $100, $500 and $1,000 and may only be issued by the two note-issuing commercial banks against holdings of Exchange