Joseph Yam reviews the progress made since the HKMA was established eight years ago.
The HKMA has just had its eighth anniversary. There was no celebration, but for those of us here at the establishment of the organisation on 1 April 1993, and who happened to remember the occasion, there were exchanges of good wishes for a happy anniversary. It seemed only yesterday that the HKMA was formally established. The past eight years have been eventful and exciting, to put it mildly. And, at the risk of appearing to be boastful (which is not my intention), I think the HKMA has been effective in achieving the objectives laid down for it, notwithstanding the difficult circumstances Hong Kong has experienced over this period.
We have been entrusted with the responsibility of delivering exchange rate stability within the framework of the linked exchange rate system. This we have clearly achieved, although considerable pain was inflicted on the community during the financial turmoil of 1997 and 1998. But this is the inevitable response of a currency board system to external shocks: there is a price to pay for everything. We have to be careful not to give the international financial community the impression that we are unwilling to bear the necessary pain. This would be a demonstration of weakness and an invitation to currency predators. Nevertheless, we did manage to modify our system so that it could absorb the brunt of external shocks and minimise the adverse impact of these on the community, by committing a larger part of our very substantial foreign reserves for this purpose. We now have a much more robust system than eight years ago; and, domestically as well as internationally, confidence in our currency system is high.
We also have a stronger and more competitive banking system than eight years ago. Against the background of globalisation and technological revolution, in which international finance is becoming ever more potent, this is quite a pleasing development. It is also a reflection of the enormous but essential supervisory input, to the extent that greater involvement has aroused some concern about over-enthusiasm on our part. But, as I have explained in this column and elsewhere, we aim to work in partnership with the banking community to ensure that our banking system can comfortably cope with a rapidly changing international and domestic financial environment. The fact that the banking system of Hong Kong has come through both the political transition and the Asian financial turmoil unscathed is a clear demonstration of how well this partnership has been working. With confidence, and perhaps some degree of cautious uneasiness, the banking system is now well prepared for greater competition arising from the final phase of interest rate deregulation and the move towards electronic banking. And I am sure it will also be well prepared for the many other challenges ahead, including those arising from the Mainland's entry into the WTO. The banking system is meeting these challenges with an admirable sense of responsibility, mindful and supportive of the need to provide an explicit safety net for small depositors in the form of a deposit insurance scheme, which is now being explored in detail.
Today we can justifiably also say that the financial infrastructure of Hong Kong is among the best and most robust in the world, and certainly the best in the region, without the danger of being challenged. We have spent a great deal of effort in this area in the past eight years, after realising, on the formation of the HKMA, that, under the previous institutional arrangements, there were important areas that had been inadvertently overlooked. The monetary and financial systems are all about financial intermediation. The more effective this process is, the greater their contribution to the economic well being of the community. Financial infrastructure is akin to the plumbing of a building. We want it to function so smoothly that nobody notices it. We certainly do not wish to see any blocked or burst pipes, particularly in times of stress. It is also similar to the physical infrastructure of the economy. We wish to move money as safely and efficiently as we move people and goods around. Since the establishment of the HKMA, we have created a debt clearing system and a real time payment system, and there is a seamless interface between. We have also embarked on the provision of a financial infrastructure that facilitates financial intermedation denominated in foreign currencies, in pursuance of the aspiration laid down in the Basic Law for developing Hong Kong as an international financial centre. There has been quite a transformation of the financial infrastructure of Hong Kong in the past eight years.
There is more work to do on all these fronts. We in the HKMA look forward to continue to play a pivotal role in this task. In the past eight years we have certainly made mistakes and, we hope that we have the understanding of the community we serve that we are not perfect. We cannot expect to be right all the time, but we certainly aim to be less wrong. And we listen and we explain. We try our very best and discharge our responsibilities professionally and transparently. We offer ourselves to be held accountable to, and look forward to the continued support of, the people of Hong Kong.
Joseph Yam
26 April 2001
More information on the work of the HKMA can be found here.
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