(Approved for Issue by the Exchange Fund Advisory
Committee on 23 September 1999)
Currency Board Operations for the Period 2
- 20 August 1999
The Sub-Committee noted that during the period under review the
market exchange rate for the Hong Kong dollar had eased from 7.7620
to 7.7641, which broadly matched the movement of the convertibility
rate in respect of the Aggregate Balance. Escalating tensions
across the Taiwan Straits coupled with renewed rumours of an RMB
devaluation in August had contributed to a weakening of the
exchange rate and a triggering of the Convertibility Undertaking in
the first and third weeks of August. This had sent the Aggregate
Balance briefly to negative levels. Members noted that, influenced
by expectations of a rise in US rates, interbank interest rates had
shown a general increase, but interest rate volatility had slightly
decreased. The Sub-Committee observed that the operations of the
Currency Board system during the period under review had
demonstrated that the system was working well. The Sub-Committee
further noted that changes in the Monetary Base throughout the
period had been fully matched by corresponding changes in foreign
reserves, in accordance with the rules of the Currency Board
system. The report on Currency Board operations for the period
under review is at Annex A.
Liquidity Arrangements for the Money Market
in the Year 2000 Context
The Sub-Committee considered proposals to increase the supply of
liquidity to the money market to relieve possible market tightness
arising out of Year 2000 positioning. These proposals provided an
elaboration on the general strategy discussed by the Sub-Committee
at its meeting in July. The proposals included a term repo facility
to licensed banks and an enlarged discount window. The
Sub-Committee gave its support to these proposals. It also
considered that the exceptions to the Currency Board rules were
acceptable in the special circumstances of the Year 2000 problem.
The Sub-Committee advised that banks should be encouraged first to
resort to their own liquidity arrangements as far as possible. The
Sub-Committee further advised that, following the Year 2000 event,
the unwinding of any special liquidity arrangements under the
proposed measures should be clearly reflected in the reports on
Currency Board operations early in 2000.
Report on Selected Millennium
Indicators
The Sub-Committee noted an information paper on selected market
indicators reflecting the Year 2000 positioning of market
participants. It was noted that the indicators would be updated
regularly for the information of the Sub-Committee.
Recent Developments in the Argentinian
Currency Board System
The Sub-Committee was briefed by Mr John Greenwood on recent
developments in the Argentinian Currency Board system.
