Functions of the Exchange Fund
The Exchange Fund's statutory role, as defined in the Exchange Fund Ordinance, is primarily to affect, either directly or indirectly, the exchange value of the currency of Hong Kong. Its functions were extended with the enactment of the Exchange Fund (Amendment) Ordinance 1992 by introducing a secondary and subsidiary role of maintaining the stability and integrity of Hong Kong's monetary and financial systems, with a view to maintaining Hong Kong as an international financial centre.
Day-to-day Management of the Exchange Fund
The HKMA manages the Exchange Fund. Apart from ensuring that the fund meets its statutory roles, one of the HKMA's principal day-to-day activities is the active management of the fund's assets. These are held mainly in the form of marketable interest-bearing instruments and equities in certain foreign currencies. To meet the operational needs of the Government, part of the Exchange Fund is also held in Hong Kong dollar denominated securities.
Investment Strategy and Operations
The HKMA regularly reviews its investment strategy and operations. In line with the statutory purposes for which the Exchange Fund was created and maintained, the investment style and strategy are similar to those of comparable central banks and monetary authorities. An investment strategy appropriate for a long-term fund - such as a benchmark approach and use of the long term capital markets - has been adopted, a wide range of currencies and instruments has been used.
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 two distinct portfolios. The Backing Portfolio ensures that the Monetary Base is fully backed by highly liquid US dollar-denominated securities. The Investment Portfolio preserves the fund's value for future generations in Hong Kong.
In 2007 a Strategic Portfolio was established to hold shares in Hong Kong Exchanges and Clearing Limited acquired by the Government for the account of the Exchange Fund for strategic purposes. Because of the unique nature of this Portfolio, it is not included in the assessment of the investment performance of the Exchange Fund.
For more information: