Federation of Hong Kong Industries: Speech by Mr Joseph Yam

In a speech delivered at the Federation of Hong Kong Industries Annual Dinner this evening (2 March), Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority (HKMA), spoke about the attributes required of a modern international financial centre.

Mr Yam said that liberalisation and the revolution in information technology had given rise to a dimensional leap in global finance - a leap which can be likened to the jump from Mach One to Mach Two in the speed of sound. He identified four attributes necessary for a "Mach Two" International Financial Centre.

The first attribute is the existence of financial intermediation channels that are characterised by stability, integrity, diversity and efficiency. "I believe our financial intermediation channels of banking, equity and debt, and their derivatives, already enjoy these characteristics," said Mr Yam. "But in the diversity of financial intermediation channels, Hong Kong is still behind, because the flow of funds through the debt channel remains, relatively speaking, small." He said that the diversity of financial intermediation channels is essential to the maintenance of financial stability.

The second attribute is the existence of a platform for financial transactions to be conducted in the major foreign currencies as well as in the domestic currency. "Whether this is to facilitate the management of currency risks by investors, or our management of currency stability, or to complete the 24-hour trading loop for global financial instruments, there is a growing need for a liquid platform in our time zone for conducting financial transactions in foreign currencies," said Mr Yam.

The platform for conducting financial transactions in foreign currencies has to be supported by robust payment, clearing and settlement systems, which form the third attribute of a Mach Two International Financial Centre. Mr Yam said that Hong Kong has already made significant progress in building such a financial infrastructure, with operating real time gross settlement systems for the US dollar, the euro and of course the domestic currency the Hong Kong dollar, and these systems are all linked up to provide payment versus payment. "We intend, as the next step and as you might have guessed, to include the renminbi in this infrastructure as soon as circumstances permit, a move that will cement our position as the international financial centre of China. Our experience in building these systems puts us in a strong position to do so," said Mr Yam.

The fourth attribute is the availability of multidimensional and direct assess to the above - the channels of financial intermediation, the platforms for the conduct of financial transactions and the payment and settlement systems. "Direct access to financial services should be available at the wholesale and retail levels, to financial intermediaries and principals, including issuers and investors, regardless of geographical boundaries," said Mr Yam. He is confident that market forces will assist in promoting the necessary changes, with or without the involvement of Government or the supervisory authorities.

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Jasmin Fung, Manager (Press), at 2878 8246 or
Kevin Ip, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
2 March 2004