The HKMA and the banking community both have a part to play in ensuring Hong Kong's RTGS payment systems continue to operate efficiently.
I am sure commuters are often annoyed by heavy traffic on roads or in tunnels. Accidents often disrupt traffic and may make us late for important appointments, which can be quite costly in terms of business opportunities forgone or loved ones being angry at our arriving late. Fortunately mobile phones make communication a lot more efficient and timely these days, enabling us to at least minimise the impact of being late. But the economic costs of traffic jams are probably still quite high, particularly in a high-density environment like Hong Kong, not to mention the resulting frustration and stress that may be quite hazardous to health. Interestingly, we accept traffic jams as an inevitable aspect of life, perhaps because a transport infrastructure free of traffic jams is too costly to build.
By comparison, Hong Kong's financial infrastructure seems a lot more effective at coping with heavy financial traffic. As an international financial centre, Hong Kong has very heavy financial traffic. Readers may be aware of the Real Time Gross Settlement (RTGS) payment systems that we use to facilitate the traffic (the flow of funds in different currencies) among banks in Hong Kong. Obviously, the one with the heaviest traffic is the Hong Kong dollar RTGS system because the Hong Kong dollar is our own domestic currency. In 2005, HK$467 billion worth of transactions were settled each day on average. This large number in itself may not mean much to readers, but it is equivalent to about a third of Hong Kong's annual Gross Domestic Product. In other words, the Hong Kong dollar RTGS system handled a traffic volume equivalent to 84 times GDP in 2005. The equivalent figure for 2004 (the latest year for which we have figures for other jurisdictions), was 79 and, as far as we can ascertain, this was the second highest in the world after Switzerland (see table below).
Hong Kong dollar traffic among licensed banks in Hong Kong has also been increasing at a rapid rate of 13% a year in the past three years. The main factors contributing to this rapid increase are Hong Kong's expanding role as an international financial centre and the economic recovery. When there is a large initial public offering (IPO) of shares, the traffic volume shoots up, sometimes by as much as three times. Imagine what would happen if one of our cross-harbour tunnels had to handle three times its normal traffic volume on one day. Even with the best tunnel management, there would be chaos. But readers, and even the bankers, probably would not notice anything unusual in our Hong Kong dollar RTGS system on those busy days. Take the recent Bank of China IPO as an example. The amount settled on 1 June 2006, the first trading day when there was also a lot of refund money going through, was HK$1.23 trillion, or almost 90% of the annual GDP.
This is a record amount settled on one day through our Hong Kong dollar RTGS system. Breaking records is always worth celebrating but there was none in the HKMA, although we did receive congratulations from a few banks. We were merely doing our jobs, even though I am pleased to know that those familiar with the financial system consider we had done more than expected. But this pleasing state of affairs does not come easily. It requires foresight in management, technical expertise on the part of the financial architects and engineers, and dedication on the part of the system operators. There is also a great deal of initiative involved, in contingency planning and in invoking special arrangements when circumstances require. The banking community is probably aware of the RTGS Liquidity Optimiser introduced in January this year. This has proven to be very helpful when the system is under stress.
We are already reviewing whether the system needs to be strengthened further. We will be working closely with banks, who are the users of the system and the ones generating the heavy traffic and benefiting from it. They will also need to look at their own capacity and capability to make sure they can handle heavy traffic too. If a huge traffic jam occurs, a payment gridlock can be very costly. And unlike traffic jams where commuters may have no choice but to continue to use the transport infrastructure, payment gridlocks can make financial traffic go elsewhere permanently. We must work together to maintain the record of zero settlement failure in our RTGS payment systems.
Joseph Yam
6 July 2006
Click here for previous articles in this column.
Document in Word format
