Issuance of additional Exchange Fund Bills

The Hong Kong Monetary Authority (HKMA) announced today (Tuesday) that additional Exchange Fund Bills will be offered in the tenders on 8 September, 15 September and 22 September totalling HK$21,700 million, to meet the increased demand for the paper by banks given the abundance of liquidity in the banking system.  The additional supply of short-dated Exchange Fund paper is designed to meet the strong demand for Exchange Fund paper by banks for liquidity management.

The issuance of additional Exchange Fund paper will be conducted by further expanding the supply of 3-month, 6-month and 12-month Exchange Fund bills through a corresponding reduction of the Aggregate Balance.  The 3-month Exchange Fund Bills to be tendered on 8 September, 15 September and 22 September will be increased by a total of HK$6,000 million.  The 6-month Exchange Fund Bills to be offered on 8 September, 15 September and 22 September, together with the 12-month Exchange Fund Bills to be offered on 15 September, will be expanded by HK$15,700 million in total.  Details can be found in the revised issuance schedule for Exchange Fund Bills and Notes (Annex).

The increase in the supply of Exchange Fund Bills is consistent with Currency Board principles, since the additional issuance simply represents a change in the composition of the Monetary Base, with a shift from the Aggregate Balance to Exchange Fund paper.  The Monetary Base remains fully backed by foreign exchange reserves.  Interbank liquidity will remain abundant after the issuance of additional Exchange Fund Bills, which is not expected to have a significant impact on liquidity conditions and interest rates.

The Aggregate Balance is projected to decline by about HK$7,000 million on 9 September, by about HK$7,700 million on 16 September, and by about HK$7,000 million on 23 September.

The forecast change in the Aggregate Balance arising from the additional issuance of Exchange Fund paper is published on the HKMA website, the Reuters screen (HKMAOOC) and Bloomberg.

Annex 1: Tentative Schedule on Issuance of Exchange Fund Bills and Notes (EFBNs) from July to September 2009
Annex 2: Tentative Schedule on Issuance of Exchange Fund Bills and Notes (EFBNs) from October to December 2009

For further enquiries, please contact:
Peggy Lo, Manager (Communications), at 2878 1687 or
Natalie Wu, Officer (Communications), at 2878 8246

Hong Kong Monetary Authority
1 September 2009