ENG-1996 — Page 127

FINANCIAL AND MONETARY AFFAIRS

who are in public practice and entitled to perform statutory audits. There were 855 CPA firms and one corporate practice 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 registering professional accountants, maintaining accounting, auditing and ethical standards for the profession and conducting professional accountants examinations.

The Professional Accountants (Amendment) Ordinance 1995 was brought into effect in August 1996. Its principal purpose is to allow accountancy practices to incorporate with limited liability subject, inter alia, to taking out adequate professional indemnity insurance.

Hong Kong Monetary Authority

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 (Amendment) Ordinance 1992 provided for the establishment of the HKMA.

The policy objectives of the HKMA are to maintain currency stability, within the framework of the Linked Exchange Rate System, through sound management of the Exchange Fund, monetary policy operations and other means deemed necessary; to ensure the safety and stability of the banking system through the regulation of banking business and the business of taking deposits, and the supervision of authorised institutions; and to promote the efficiency, integrity and development of the financial system, particularly payment and settlement arrangements. The HKMA is divided into five departments: Monetary Policy and Markets; Reserves Management; Banking Policy; Banking Supervision; and External.

The HKMA is an integral part of the Hong Kong 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 committee's involvement in respect of monetary and investment matters has become much stronger. It functions like a management board, meets monthly and advises the Financial Secretary on, among other things, the HKMA's annual budget.

Monetary Policy

The 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 three note- issuing banks are required to hold as backing for the issue of Hong Kong dollar notes, are issued and redeemed against 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 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 CIs, the market exchange rate stays close to the rate of $7.80 to US$1.

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