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 28 May and 4 June, totaling HK$15,000 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 expanding the supply of 3-month and 6-month Exchange Fund Bills. Specifically, the 3-month and 6-month Exchange Fund Bills to be tendered on 28 May will be increased by HK$4,000 million and HK$2,000 million, respectively. In addition, a new issue of 6-month Exchange Fund Bills, with a size of HK$9,000 million, will be offered on 4 June and the issue will be rolled over upon maturity.  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 is expected to 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$6,000 million on 29 May and by about HK$9,000 million on 5 June.

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 :
Tentative Schedule on Issuance of Exchange Fund Bills and Notes (EFBNs) from April to June 2013
Tentative Schedule on Issuance of Exchange Fund Bills and Notes (EFBNs) from July to September 2013

Hong Kong Monetary Authority
21 May 2013