ENG-1995 — Page 118

FINANCIAL AND MONETARY AFFAIRS

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The Professional Accountancy

Hong Kong had 9 906 registered professional accountants at the end of 1995. Of these, 2 092 were certified public accountants (CPAs) or public accountants (PAs), who are in public practice and entitled to perform statutory audits. There were 823 CPA firms in the territory at the end of the year.

The Hong Kong Society of Accountants is a self-regulatory body established under the Professional Accountants Ordinance with a wide range of responsibilities for maintaining accounting, auditing and ethical standards for the profession and for conducting examinations to accredit professional accountants.

Hong Kong Monetary Authority

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The HKMA was established in April 1993 by merging the Office of the Exchange Fund with the Office of the Commissioner of Banking. The Exchange Fund (Amend- ment) Ordinance 1992 provided for the establishment of the HKMA.

The authority is responsible for the development and execution of monetary policy; maintenance of the exchange rate and monetary stability; the development of the debt market in Hong Kong; promoting the efficiency, integrity and development of payment and settlement arrangements; managing the assets of the Exchange Fund; prudential supervision of authorised institutions under the Banking Ordinance; and formulating policies relating to banking supervision. These functions are carried out by its five departments: Monetary Policy and Markets; Reserves Management; Banking Policy; Banking Supervision; and External. The last-named was set up in 1994 to develop contacts and co-operation with other central banks and multilateral financial institutions, to strengthen the HKMA's research capabilities and to monitor international monetary developments.

The HKMA is an integral part of the government, but can employ staff on terms different from those of the civil service to attract personnel of the appropriate experience and expertise. Its staff and operating costs are charged directly to the Exchange Fund, instead of the general revenue.

The HKMA is accountable to the Financial Secretary, who is advised by the Exchange Fund Advisory Committee on matters relating to the control of the Exchange Fund. The involvement of the committee in respect of monetary and investment matters has become much stronger. It functions very much like a management board, meets monthly and advises the Financial Secretary on, among other things, the HKMA's annual budget.

Monetary Policy

A linked exchange rate system was introduced on October 17, 1983, after a period of volatility in the exchange rate of the Hong Kong dollar. Under the system, certificates of indebtedness (CIs) issued by the Exchange Fund, which the note-issuing banks are required to hold as cover for the issue of Hong Kong dollar notes, are issued and redeemed against payments in US dollars at a fixed exchange rate of $7.80 to US$1. In practice, therefore, any increase in note circulation is matched by a US dollar payment to the Exchange Fund, and any decrease in note circulation is matched by a US dollar payment from the Exchange Fund. In the foreign exchange market, the exchange rate of the Hong Kong dollar continues to be determined by forces of supply and demand. Against the fixed exchange rate for the issue and redemption of