HONG KONG MONETARY AUTHORITY Annual Report 1996
HONG KONG MONETARY AUTHORITY
MANAGEMENT OF INTERBANK LIQUIDITY IN 1996
While money market conditions were generally stable throughout 1996, monetary operations were occasionally carried out to ease temporary tightening arising from month-end and year-end settlements as well as share subscription activities. Towards the end of the year, a substantial amount of liquidity was injected into the market to meet the increase in banks' demand for liquidity in the initial stage of the RTGS implementation. The Aggregate Balance in the Settlement Accounts maintained by banks with the HKMA was at a level of around $8 bn to $10 bn for most of December ( Chart 3). As banks became more familiar with the new interbank payment system towards the latter part of December, demand for liquidity gradually eased. The Aggregate Balance in the Settlement Accounts was around $2 bn to $3 bn in early 1997, which was comparable to the levels prior to the introduction of RTGS.
ACQUISITION OF BANKNOTE PRINTING PLANT
In January 1996, the Government through the HKMA reached an agreement with the De La Rue Group to purchase the latter's note printing plant in Hong Kong. The plant is the printer of Hong Kong dollar banknotes. The Chief Executive of the HKMA assumed chairmanship of the acquired company, which was renamed the Hong Kong Note Printing Limited.
In line with the responsibilities conferred upon the Government under the Legal Tender Notes Issue Ordinance and the Basic Law, the acquisition of the plant enables the Government, via the HKMA, to have direct involvement in the production of Hong Kong currency notes.
The Hong Kong Note Printing Limited continued to operate efficiently and profitably after the take-over
CHALLENGES
With the successful implementation of a series of monetary reforms in the past few years, the HKMA is now equipped with a range of weaponry to ensure exchange rate stability under the linked exchange rate system. Its capability and determination to maintain currency stability was best demonstrated by the success in fending off promptly and effectively a brief speculative attack on the Hong Kong dollar in January 1995, following the Mexican peso crisis.
There is however no room for complacency. Looking ahead, volatility in capital flows in the international financial markets as well as the political transition in Hong Kong point to the need for staying vigilant. The credibility of the linked exchange rate system will continue to be underpinned by the unwavering commitment of the Hong Kong Government to the system, its strong fiscal discipline, the sizable foreign exchange reserves, a flexible labour market and sound macroeconomic fundamentals.