Transcript Hong Kong Monetary System

Hong Kong Monetary System
KWAN Kui Kwan
HK’s Linked Exchange Rate System
BY KWAN Kui Kwan
History
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1863 - 1935 Silver Dollar
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1935 – 1967 HK$16.00 to UK£1.00
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(1935 Silver Crisis)
1967 – 1972 HK$14.55 to UK£1.00
1972 – 1973 HK$5.65 to US$1.00
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(silver standard base – Int’l Currency)
(1972 UK Gvn’t float UK£)
1973 - 1974 5.085 to US$1.00
1974 – 1983 free floating
Crisis
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high volatility after free floating
Inflation from 2.7% (1975) to 15.5% (1980)
HK$5.13 to US$1.00 (1981) to HK$9.60 (1983)
September 1983 drop of 13% in 2 days
the future of Hong Kong (Return to PRC)
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15 October 1983 HK$7.80 to US$1.00
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Crisis
How it works?
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Certificates of Indebtedness
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Government-issued notes and coins
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banknotes issued by HKMA
Aggregate Balance
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back the banknotes issued by the banks
balances of the accounts of banks in HKMA
Exchange Fund Bills and Notes
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issued by the HKMA
Certificates of Indebtedness
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banks issue banknotes
required by law to purchase CoI
HK$7.80 to US$1.00
backing for the banknotes
HKD banknotes fully backed by USD
USD held by the Exchange Fund
Notes issued by Banks
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The Hongkong & Shanghai Bank Corporation
Notes issued by Banks
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Bank of China
Notes issued by Banks
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Standard & Chartered Bank
Government-issued HKD
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Government appointed agent bank
agent bank responsible to store & distribute
settled against US dollars
HK$7.80 to US$1.00
Notes issued by Government
Money Printer in HK
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Hong Kong Note Printing Limited
Located in Tai Po Industrial Estate
Share Distribution
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HKMA - 55%
China Banknote Printing & Minting Corp. – 15%
HK & Shanghai Banking Corporation – 10%
Standard Chartered Bank (HK) Ltd. – 10%
Bank of China (Hong Kong) Limited – 10%
Money Printer in HK
Money Printer in HK
Aggregate Balance
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Aggregate Balance may varies
HKMA responds to the flow of HKD
Exchange Fund
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actively managed to achieve a higher return
long term investment
existing foreign currency reserves
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9th while the 1st is China, 2nd Japan, 3rd Russia
total assets of HK$1,997.80 billion
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The Monetary Base HK$1,032.00 billion
Exchange Fund
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actively managed to achieve a higher return
long term investment
existing foreign currency reserves
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9th while the 1st is China, 2nd Japan, 3rd Russia
total assets of HK$1,997.80 billion
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The Monetary Base HK$1,032.00 billion
Mechanism
CAPITAL INFLOW
1.Market Participants buy HKD
2.Upward pressure on the HKD exchange rate
3.HKMA Currency Board sells HKD
4.Monetary Base of HK expands
5.Interest rates fall
6.HKD exchange rate stability achieved
Mechanism
CAPITAL OUTFLOW
1.Market Participants sell HKD
2.Downward pressure on the HKD exchange rate
3.HKMA Currency Board purchases HKD
4.Monetary Base of HK contracts
5.Interest rates rise
6.HKD exchange rate stability achieved
HK Monetary Authority