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 23, 30 August and 6, 13 September 2016 totaling HK$21,000 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 Exchange Fund Bills to be offered on 6 and 13 September 2016 will each be increased by HK$3,000 million respectively, whereas the 6-month Exchange Fund Bills to be offered on 23, 30 August and 6, 13 September 2016 will each be increased by HK$3,000 million respectively. In addition, a new issue of 12-month Exchange Fund Bills, with a size of HK$3,000 million, will also be offered on 23 August 2016 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 24 August, to decline by about HK$3,000 million on 31 August and to decline by about HK$6,000 million on 7 and 14 September respectively.

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 July to September 2016

Hong Kong Monetary Authority
16 August 2016