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Speeches

Currency Manipulation is Exacerbating Hong Kong's Pain

by Joseph Yam, Chief Executive, Hong Kong Monetary Authority

(Published in Financial Times on 17 August 1998)

17 August 1998

Monetary management, even in a rule-based currency board system, can be misinterpreted. Two actions by the Hong Kong Monetary Authority (HKMA), have been misinterpreted and there is a need for clarification.

The first action is to fund the anticipated budget deficit for the current financial year by selling a small part of our very large foreign reserves. I do not see how this is objectionable. It is up to the HKMA, managing the fiscal reserves on behalf of the government, to choose an appropriate time to do this. When there is substantial selling of Hong Kong dollar, whether or not for the purpose of manipulating our currency, is a good time to act.

The second action is to tackle currency manipulation by those who have built up large short positions in the stock index futures.

We are not against the taking of short positions in stock index futures by anybody, in accordance with our free-market philosophy. But we do object to people manipulating our currency to engineer extreme conditions in the interbank market and high interest rates to make profits in the short positions in stock index futures. We have reason to believe there has been such manipulation.

This has nothing to do with our preparedness to bear the pain of economic adjustment under a currency board system. We are prepared, and have the ability, to bear that pain. But the currency manipulation, "coinciding" with malicious rumours of all sorts, is disproportionately exacerbating that pain.

To deter currency manipulation, we took action to tackle the matter at source, and that meant making sure that those engaging in this activity lose money. We realise that this might be seen as a departure from our free-market philosophy. That is why we agonised before this difficult decision was taken. But we feel that we have done the right thing.

As soon as currency manipulation ceases, we will step back from the stock and futures markets and let them find their levels. But meanwhile we shall act to deter currency manipulation.

Last revision date: 1 August 2011
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