Key Information

Speeches by Speaker
Norman T.L. Chan
Peter Pang
Eddie Yue
Arthur Yuen
Zeti Akhtar Aziz
Raymond Li
Edmond Lau
Esmond Lee
Meena Datwani
Vincent W.S. Lee
James Lau
Joseph Yam
Y K Choi
William Ryback
David Carse
Tony Latter
Andrew Sheng
Hans Genberg
Simon Topping
Michael Taylor
The Honourable Donald Tsang
Chen Yuan
Dai Xianglong
Don Brash
Jaime Caruana
Andrew Crockett
Mario Draghi
David Eldon
Stanley Fischer
Timothy F. Geithner
Stephen Grenville
Kenneth G. Lay
William McDonough
Ernest Patrikis
Glenn Stevens
Jean-Claude Trichet
Tarisa Watanagase
Zeti Akhtar Aziz
Carmen Chu
Alan Au
Press Releases
Press Releases by Category
Bogus Voice Message Phone Calls
Banking in Hong Kong
Fraudulent Websites, E-mails and Telephone System, and other fraud cases
Granting of Banking Licences
Exchange Fund
Table of Multiples of Notes and Payments for Allotted Amount under non-competitive tender
Table of Multiples of Notes and Payments of Application Amount under non-competitive tender
Tender of Exchange Fund Bills and Notes
Tender Results of Exchange Fund Bills and Notes
Tentative Issuance Schedule for Exchange Fund Bills and Notes
Appointments and Departures
HKMA Pay Review
HKMA Publications
The Hong Kong Mortgage Corporation
Hong Kong Note Printing Limited
Hong Kong Institute for Monetary Research
Exchange Fund Investment Limited
Hong Kong Financial Infrastructure
International Relations
Investment Products Related to Lehman Brothers
Monetary Policy
Notes and Coins
Renminbi business
Credit Card Lending Survey
Monetary Statistics
Residential Mortgage Survey
Year 2000
Guidelines and Circulars

Press Releases

Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Sub-Committee on Currency Board Operations held on 4 January 2002

(Approved for Issue by the Exchange Fund Advisory Committee on 24 January 2002)

Currency Board Operations for the Period 29 November - 19 December 2001

The Sub-Committee noted that the Hong Kong dollar had been generally stable during the period under review. Amid tightening interbank liquidity, the HKMA had, in response to banks' offers, sold a total of HK$0.23 bn, resulting in an expansion of the Aggregate Balance and a consequent softening of interbank interest rates. Interbank interest rates had further eased in the second week of December, following the 25 bps cut in the US Fed Funds Target Rate. Towards the end of the period, there had, as usual, been an increased demand for the Hong Kong dollar, partly reflecting market anticipation of higher local interest rates during the year-end period: the exchange rate had, as a result, strengthened. The Sub-Committee observed that, largely as a result of net interest income on backing assets and an increase in the outstanding amount of Certificates of Indebtedness, the backing ratio had increased during the period, although, at 111.60% at the end of the period, it was still some distance away from the trigger point of 112.5%, at which assets would be transferred from the Backing Portfolio to the Investment portfolio sufficient to reduce the backing ratio to 110%.

2. Members noted that neither the crisis in Argentina nor concerns about the depreciation of the yen had had much impact on the Hong Kong dollar exchange and money markets. With reference in particular to the Argentinian situation, it appeared that the markets were clearly differentiating between Hong Kong's currency board system and that in Argentina.

3. The Sub-Committee noted that, in accordance with Currency Board principles, changes in the monetary base continued to be fully matched by changes in foreign reserves.

4. The report on Currency Board operations for the period under review is at Annex A.

Monitoring of Risks and Vulnerabilities

5. The Sub-Committee noted the regular information on external and internal risks facing Hong Kong. Members observed that, externally, the situation in the major economies was continuing to evolve very slowly. There had been little hard evidence of any improvement in the indicators for the fourth quarter of 2001. More recently, however, some indicators suggested the beginnings of an upturn in the US economy, though it was too early to say whether these would be sustained. A particular concern was the deterioration in the labour markets of both the US and Japan, which could have a negative impact on consumer confidence and spending. Members noted the depreciation of the yen during the period under review. This was, in a sense, a two-edged sword: it raised concerns about pressures on other currencies in the region; yet if it helped stimulate Japanese economic growth this would generally be of benefit to the region. Members also noted that, so far, there had been little contagion from the Argentinian crisis into other markets. If, however, the peso devalued, the risk of contagion could increase.

6. The Sub-Committee noted that, for Hong Kong, the indicators continued to point to a slowdown in economic activity, despite an increase in the transaction volume of residential properties in November. The slowdown was expected to continue well into 2002, although there continued to be uncertainty about the prospects for growth for the year as a whole. Members noted that a particular concern was the continuing difficult fiscal situation.

Estimating Hong Kong's Output Gap and its Impact on Inflation

7. The Sub-Committee noted an information paper on Hong Kong's output gap and its relationship with inflation, with particular reference to the deceleration in Hong Kong's growth from an annual average of 7% in the period 1977-1994 to 3.5% in 1995-2000. The analysis in the paper suggested that, although Hong Kong's potential growth had moderated since the Asian financial crisis, it was still above the average of the G-7 countries. The negative output gap, which had emerged in 1998-9, had virtually vanished following the strong recovery in 2000, although a negative output gap was likely to re-emerge in 2001. The analysis suggested that the output gap had a significant impact on inflation both in the short run and the long run. A change in the import price had a significant contemporaneous effect on inflation, and was fully passed through to the domestic price over the long run. According to the research, the current deflation process was more a cyclical than a structural phenomenon, and was likely to continue in the immediate future as a result of the possible re-emergence of a negative output gap in 2001 and the long-run effect of the negative gaps of 1998-2000.

For further enquiries, please contact:


Jasmin Fung, Manager (Press), at 2878 8246 or
Sylvia Yip, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
28 January 2002

Last revision date: 1 August 2011
Tender Invitations
Legislative Council Issues
The HKMA Information Centre
Monetary Stability
Banking Stability
International Financial Centre
Exchange Fund
Annual Report
Half-Yearly Monetary & Financial Stability Report
Quarterly Bulletin
HKMA Background Briefs
Reference Materials
CMU Bond Price Bulletin
Economic & Financial Data for Hong Kong
Monthly Statistical Bulletin
Monetary Statistics
Press Releases
Guidelines & Circulars
Forthcoming Events
Information in Other Languages (Bahasa Indonesia, हिन्दी, नेपाली, ਪੰਜਾਬੀ, Tagalog, ไทย, اردو)
Account Opening
Consumer Corner
Consumer Education Programme
Complaints about Banks
Complaints about SVF Licensees
Internet Banking
Fraudulent Bank Websites, Phishing E-mails and Similar Scams
Be Careful of Bogus Phone Calls and SMS Messages
Authenticate the Callers and Bank Hotline Numbers
Register of AIs & LROs
Register of Securities Staff of AIs
Register of SVF Licensees
Investment Products Related to Lehman Brothers
Photo Gallery