ENG-2009 — Page 140

92 | Financial and Monetary Affairs

system strengthened. Term interbank interest rates declined to very low levels during the year, reflecting the larger Aggregate Balance and the downward movements in the corresponding US dollar interest rates. The overnight interbank interest rates also stayed near zero, with occasional increases due to IPO-related funding demand.

The HKMA exited from the five temporary liquidity measures and other related policy actions in March 2009 smoothly and Hong Kong's money market remained calm. The HKMA also prepared the ground for exiting from the contingent capital facility for banks and the temporary full deposit guarantee, although there had been no need to resort to these measures. In July 2009, the HKMA, Bank Negara Malaysia and the Monetary Authority of Singapore established a tripartite working group to facilitate the scheduled exit from the full deposit guarantees by the end of 2010 in their respective jurisdictions. Meanwhile, the Government is preparing legislative amendments to effect the enhancements to the Deposit Protection Scheme so that the public may enjoy better deposit protection under an enhanced Deposit Protection Scheme upon the expiry of the full deposit guarantee.

Exchange Fund

According to the Exchange Fund Ordinance, the Exchange Fund's primary statutory role is to affect the exchange value of the Hong Kong dollar. It can also be used to maintain the stability and integrity of the monetary and financial systems, with a view to maintaining Hong Kong as an international financial centre.

The HKMA is responsible to the Financial Secretary for the use and the investment management of the Exchange Fund. To meet the objectives of preserving capital, providing liquidity to maintain financial and currency stability and generating an adequate long-term return, the Exchange Fund is managed as distinct portfolios. The Backing Portfolio holds highly liquid US-dollar-denominated debt securities to fully back the monetary base. The Investment Portfolio aims to preserve the fund's long-term purchasing power. The asset allocation strategy of the Exchange Fund is guided by the investment benchmark approved by the Financial Secretary on the advice of the EFAC. The details of the management of the fund and the investment style adopted are set out and explained in the HKMA's annual report. A Strategic Portfolio was set up in 2007 to hold all the shares of Hong Kong Exchanges and Clearing Limited acquired for strategic purposes by the Financial Secretary using the Exchange Fund.

On December 31, 2009, the Exchange Fund's total assets stood at $2,151.7 billion. The accumulated surplus of the Exchange Fund amounted to $553.3 billion. Foreign currency asset figures have been published monthly since January 1997 to demonstrate the Government's continued commitment to greater openness and transparency. In addition, an abridged balance sheet of the Exchange Fund and a set of Currency Board accounts are published monthly.

Another function related to the Exchange Fund is currency issuance. Bank notes in denominations of $20, $50, $100, $500 and $1,000 are issued by the three note issuing banks: Standard Chartered Bank (Hong Kong) Limited, the Hongkong and Shanghai Banking Corporation Limited and Bank of China (Hong Kong) Limited. The