Anniversaries

inSight

21 Aug 2008

Anniversaries

Anniversaries are often times for reflection rather than celebration.

There are many who like anniversary celebrations, regardless of whether the occasion is a memorable one, and there are those who do not feel nostalgic about anything at all. I think it is alright, every now and then, to go down memory lane, particularly if the event is an important one. But it is important that you don’t overindulge in the journey and forget about the present or become complacent about the future. When the subject is a matter of public interest and the actors are the authorities responsible for protecting it, it is only prudent for any celebrations to be kept low-key.

I am not a nostalgic person and I am acutely aware of the continuing, severe financial stress in the developed markets presenting considerable risks to monetary and financial stability globally and in Hong Kong. So, when we in the HKMA were considering whether we should mark a number of anniversaries that fall this year: the 25th anniversary of the establishment of the Linked Exchange Rate system; the 20th anniversary of the "Accounting Arrangements" that transferred control over the Monetary Base from a private-sector organisation to the Government; the 15th anniversary of the establishment of the HKMA; and the 10th anniversary of intervention in the local equities market in response to attempts at manipulation, the collective advice was simply no.

Interestingly, however, I understand from some of our press friends that these events are remembered, some more than others, with the stock-market intervention ten years ago considered the most memorable. And although many of our press friends were still in school in 1983, they somehow are familiar, perhaps through their parents, with the surge in the exchange rate to HK$9.60 to US$1 on 23 September a quarter of a century ago, and the emptying of shelves in the supermarkets that weekend. Understandably, the establishment of the HKMA fifteen years ago was a less memorable event, since it was not associated with a financial crisis. But obviously it is important to us and I hope the community has a positive impression of our performance during those fifteen years, which have seen some very turbulent and difficult times. The "Accounting Arrangements" introduced in 1988 are remembered by only a few, although, as the designer of them, I have a biased view of their historical and technical significance, given that they laid the foundation for proper monetary control in Hong Kong.

Recent news stories on the stock-market intervention in 1998 did jolt my memory, if only briefly, back to that couple of weeks of unprecedented, controversial intervention; the agony of a free-market believer being let down by the market he believed in – and still believes in, if with a little more caution than before; responding to criticisms from all sides; the "war room" in our offices at Citibank Plaza.

It is interesting that, ten years on, others seem to have come to the same conclusion we reached then: that when faced with the distinct possibility of a financial meltdown, it is in the public interest for the responsible authorities to take action to put things back on track, even if this involves the use of public money or the assumption of moral hazard. I certainly hope, and believe, that the actions now being taken by the financial authorities of the developed markets will be proved right, as I think our stock-market intervention in 1998 was proved right by subsequent events, although controversies inevitably remain.

Come October this year, there will also be no quarter-of-a-century anniversary celebrations within the HKMA of the Linked Exchange Rate system (announced on Saturday 15 October and implemented on Monday 17 October 1983). After all, it is not the longevity of the system that matters: what is important is that, looked at objectively, it has been and remains the best way to ensure monetary and financial stability for Hong Kong. The Government has repeatedly stated that there are no plans to change the system.

Joseph Yam
21 August 2008

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