FAQs

The HKMA is Hong Kong’s central banking institution. The HKMA has four main functions:

• maintaining currency stability within the framework of the Linked Exchange Rate system
• promoting the stability and integrity of the financial system, including the banking system
• helping to maintain Hong Kong's status as an international financial centre, including the maintenance and development of Hong Kong's financial infrastructure
• managing the Exchange Fund

The HKMA was established on 1 April 1993 after the Legislative Council passed amendments to the Exchange Fund Ordinance in 1992 empowering the Financial Secretary to appoint a Monetary Authority.

The powers, functions and responsibilities of the Monetary Authority are set out in the Exchange Fund Ordinance, the Banking Ordinance, the Deposit Protection Scheme Ordinance, the Payment Systems and Stored Value Facilities Ordinance and other relevant Ordinances.

The Monetary Authority is appointed under the Exchange Fund Ordinance to assist the Financial Secretary in performing his functions under the Exchange Fund Ordinance and to perform such other functions as assigned by other Ordinances or by the Financial Secretary. The office of the Monetary Authority is known as the HKMA, and the Monetary Authority is the Chief Executive of the HKMA.

The Exchange Fund is under the control of the Financial Secretary. The Monetary Authority, under delegation from the Financial Secretary, is responsible to the Financial Secretary for the use of the Exchange Fund, and for the investment management of the Fund. In his control of the Exchange Fund the Financial Secretary is advised by the Exchange Fund Advisory Committee (EFAC), which is established under the Exchange Fund Ordinance.

EFAC is assisted in its work by five sub-committees, which monitor and advise on specific areas of the HKMA’s work and make recommendations to the Financial Secretary through EFAC. These sub-committees include the Governance Sub-Committee, the Audit Sub-Committee, the Currency Board Sub-Committee, the Investment Sub-Committee, and the Financial Infrastructure and Market Development Sub-Committee.

Yes, the HKMA Information Centre, consisting of an exhibition centre and a library, is an important resource for introducing the work of the HKMA to the community and promoting public awareness of monetary and banking matters. The Centre is open to the public for free. Guided tours are available on a daily basis. Group visits for schools, tertiary institutions, and non-profit organisations can also be arranged upon request.

For more information about the Information Centre, please call (852) 2878 1111 or visit its webpage.

Section 103 of Part XI of the Crimes Ordinance (Cap. 200 of the Laws of Hong Kong) provides the legal basis for the HKMA to approve reproduction of Hong Kong currency notes. Provisions in Part XI of the Ordinance target counterfeiting and kindred offences (including reproduction of Hong Kong currency notes), with an aim to protecting the public. Indeed, some citizens had suffered monetary losses in the past as a result of receiving counterfeit notes, so these legal provisions have their practical relevance.

Having said that, there may be a need for the public to reproduce or print images of currency notes from time to time under some special circumstances, such as for production of films or educational materials. Therefore, the Ordinance provides a mechanism for the public to apply to the HKMA for lawful reproduction of currency notes for such specific purposes. The applicants however must comply with certain conditions so as to prevent the replica notes from falling into the wrong hands who might use them to deceive the public.

Under section 103 of the Crimes Ordinance (Cap. 200 of the Laws of Hong Kong), a person who, without the consent in writing of the Monetary Authority, reproduces on any substance whatsoever, and whether or not to the correct scale, any Hong Kong currency note or any part of a Hong Kong currency note, commits an offence.

The above provision applies to any Hong Kong currency note which has been lawfully issued in Hong Kong, despite that the note may no longer be in day to day circulation.

Individuals and institutions may apply. The HKMA also accepts applications made by authorised persons.

In the past, applications received by the HKMA were mostly for educational and instructional purposes, advertisement and for shooting films or TV programmes etc.

Similar to Hong Kong, other parts of the world also have stringent controls on reproduction of currency notes, although the specific requirements may vary. In jurisdictions like the US, the UK, Australia, Canada and Singapore, only one-sided reproduction of currency notes is allowed. In Hong Kong and the European Union (EU), two-sided reproduction is permitted. For Hong Kong, the replica notes must be at least 20% larger or smaller than the actual size of the notes. That means the length and width of the replicas only need to be 10% longer or shorter than the genuine notes. In the EU, on the other hand, the size of the reproduction is at least 200% of both the length and width or at most 50% of both the length and width of the actual notes. In some jurisdictions, as long as certain criteria are met (e.g. one-sided reproduction), application for approval can be exempted.

Unless the electronic images of currency notes are to be reproduced into a physical form, approval by the HKMA is not required for the filming of currency notes for viewing on mobile phones and electronic screens, as such electronic images cannot be passed as currency notes. Nor is approval required for making of electronic or print images of currency notes by the media for news reporting purposes.

Since section 103 of the Crimes Ordinance applies to Hong Kong currency notes only, the HKMA is not empowered to process applications for reproduction of foreign currency. Those who wish to reproduce currency notes of other countries should study the laws and regulations of the respective countries and assess the legal risks, including ss.96-102 of the Crimes Ordinance (Cap. 200 of the Laws of Hong Kong). If in doubt, please seek independent legal advice.

Applicants may make a written application in the following ways:

• Email: publicenquiry@hkma.gov.hk
• Fax: 2878 2010
• Post: 55/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong (Attn: Public Enquiry Service)

The applicant should submit a completed application form and relevant information to the HKMA.

Upon receipt of the application, the HKMA will reply to the applicant granting him/her an interim approval to prepare a sample of the presentation for review by the HKMA and Commercial Crime Bureau of Hong Kong Police Force. The HKMA, after confirming that the sample(s) and details submitted are in compliance with the requirements, will issue a written approval. Generally speaking, the processing time will take around 2 weeks. To avoid infringing intellectual property rights, applicants may also need to obtain the approval of the concerned note-issuing banks or the Information Services Department of the HKSAR Government (for the Government $10 notes) for consent to use their currency note images. The contact details are as follows:

• HSBC: email hsbc.bank.note.support@hsbc.com.hk
• Standard Chartered Bank (Hong Kong) Ltd: email Sustainability.HK@sc.com
• BOC(HK): email corp_comm@bochk.com
• Information Services Department: please contact the HKMA: email publicenquiry@hkma.gov.hk

Please refer to General Conditions on Reproduction of Hong Kong Currency Notes as Stage Money; General Conditions on Reproduction of Hong Kong Currency Notes for Advertisements Purposes; and General Conditions on Reproduction of Hong Kong Currency Notes for Educational or Instructional Purposes.

Apart from requirements on the design layout and wording, the number of notes to be reproduced (for stage money) should be reasonable.

No.

Please refer to General Conditions on Reproduction of Hong Kong Currency Notes as Stage Money; General Conditions on Reproduction of Hong Kong Currency Notes for Advertisements Purposes; and General Conditions on Reproduction of Hong Kong Currency Notes for Educational or Instructional Purposes.

The HKMA would provide contact details of the Police in the approval letter, to facilitate communication between the applicant and the Police on follow up work.

Application forms, guidelines and relevant documents are available from the HKMA website.  Applicants may also contact the HKMA directly:

• Email: publicenquiry@hkma.gov.hk
• Fax: 2878 2010
• Post: 55/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong (Attn: Public Enquiry Service)

Interbank interest rates in Hong Kong normally follow closely the movements of their US counterparts under the Linked Exchange Rate system (LERS). The size of the interest rate spread between the Hong Kong dollar and US dollar mainly reflects the premium (be it positive or negative) that investors demand on the Hong Kong dollar. Should the interest rate differential get out of line with market expectation, funds will flow to the currency with relatively higher interest rates to reap the arbitrage profits.

Retail interest rates, including time deposit rates, are determined by market forces. Likewise, the best lending rate, which is the benchmark interest rate offered by banks on their loans to customers, is subject to commercial decisions by individual banks. Given that interbank funding is a major source of funding for the banking system, retail interest rates will be influenced by movements in interbank interest rates.

A currency board system is a rule-based monetary regime encompassing two distinct features: full reserve-backing requirement of the monetary base, and an explicit commitment of the currency board or monetary authority to convert the domestic currency into a reserve currency at a prescribed fixed exchange rate.

The backing rule forbids central bank’s creation of unbacked monetary liabilities through lending to the public or the private sector. The monetary discipline so imposed, together with the explicit commitment to the fixed exchange rate between the domestic currency and the reserve currency, adds credibility to the currency board system, and has led to the perception that it is a particularly robust form of fixed exchange rate system.

The HKMA operates within the Convertibility Zone taking into account market conditions, including the exchange rate, interest rates, the Aggregate Balance and other relevant market information. It will also monitor whether there are market anomalies that may arise from time to time, which may affect the smooth functioning of the LERS.

In its meeting in July 2005, the Exchange Fund Advisory Committee Currency Board Sub-Committee endorsed four broad principles that should govern operations within the Convertibility Zone: (i) all operations should be carried out in strict accordance with Currency Board rules; (ii) the primary objective of any operations should be to preserve exchange rate stability implied by the LERS and to maintain confidence in the system; (iii) operations might be undertaken to support such interest rate adjustments as would maintain exchange rate stability under the LERS and would avoid destabilising behaviour in interest rates; and (iv) operations might also be undertaken in order to remove market anomalies. While these four principles should be generally applicable for the time being, they will be kept under review in the light of experience and changing conditions.

The principle of “one country, two systems” is clearly enshrined in the Basic Law. Article 111 stipulates that “The Hong Kong dollar, as the legal tender in the Hong Kong Special Administrative Region, shall continue to circulate.” We do not envisage any change to the legal tender status of the Hong Kong dollar when the renminbi becomes fully convertible.

The LERS suits Hong Kong as it is a small and open economy. As Hong Kong’s economic growth is driven mainly by external factors, the cost of a more volatile exchange rate will be much larger than the cost of a volatile domestic sector. The LERS has been the anchor of Hong Kong’s monetary and financial stability for more than 30 years and has proved highly resilient in a series of regional and global financial crises during this period.

Separately, even though central banks operating under a floating exchange rate regime can deploy independent monetary policy to conduct macroeconomic management theoretically, such benefits may not be realisable for small and open economies. Theoretically, they could raise interest rates or let their currency appreciate to mitigate inflation. But according to the experience of many emerging market economies, the resultant widening of interest rate spread or the appreciation of domestic currency might heighten speculations for further currency appreciation, attracting capital inflows and hot money, and thus weakening or even offsetting the effectiveness of monetary policy tightening. As such, it could intensify risks to financial markets and the wider economy by intensifying the currency appreciation pressure in the short term and hence heightening the risk of subsequent sharp currency depreciation upon abrupt reversal of fund flows. Hong Kong, being a small and open economy and international trade and financial centre, may see large fluctuations in the exchange rate of its currency should a floating exchange rate regime be adopted. This is not conducive to external trade and cross-border investment.

The effectiveness of the LERS is helped by a number of economic attributes enjoyed by Hong Kong:

First, the structure of Hong Kong economy is flexible and responsive. Markets such as the labour market, property and retail markets respond quickly to changing circumstances: this flexibility facilitates adjustments in internal prices and costs, which in turn bring about adjustments to external competitiveness without the necessity of moving the exchange rate.

Secondly, Hong Kong’s banking system is strong and solvent, and well able to cope with the fluctuations in interest rates which may arise under the LERS.

Thirdly, the Hong Kong SAR Government pursues a prudent fiscal policy, with large accumulated fiscal surpluses and a target of budgetary balance over the medium term. Thus there is no fear that the exchange rate system might be undermined by monetary financing of government expenditure.

Fourthly, Hong Kong possesses ample foreign currency reserves including sufficient US dollar assets for supporting the LERS. Hong Kong’s official foreign currency reserve assets cover about seven times the currency in circulation and are among the highest in the world.

The LERS rules out the use of nominal exchange rate movements as a mechanism of adjustment. Thus, shocks to the economy triggered by external or domestic events, such as sharp depreciations of the currencies of Hong Kong’s competitors or recession in export markets, may necessitate more adjustments of the internal cost/price structure than would be needed if the exchange rate were free to adjust. While such internal adjustment is slower than rapid adjustment by the exchange rate, the process may be accompanied by more durable and necessary structural adjustments within the real economy. The LERS leaves little scope for an autonomous interest rate policy to achieve the objectives of price stability or promotion of economic growth. Nevertheless, the flexible economic structure in Hong Kong enables its economy to adapt quickly to changing circumstances. Hong Kong’s economic growth performance has been impressive under the LERS since 1983.

Hong Kong’s inflation depends on a number of domestic and external factors. The LERS has not been the main factor in driving inflation higher in Hong Kong. The pick-up of inflation in the past few years was partly due to global factors such as weather and imbalance of supply and demand, which had no direct relationship with the exchange rate regime. In addition, Hong Kong spends more on services than goods. Goods (including those imported) constitute only about a quarter of Hong Kong’s consumption basket. Therefore, the exchange rate has not been a key factor in driving Hong Kong’s inflation.

Movements in local asset prices are subject to various factors. For example, property prices are determined by factors such as interest rates, demographic structure, land and housing supply, the prospect of household income, etc. Many emerging market economies with more flexible exchange rate regimes are not immune from the problem of influx of capital and asset bubbles in the past few years.

Many research studies find that monetary policy is not the most effective tool for targeting asset prices as it is difficult to confine the impact of discretionary interest rate policy to individual asset markets while leaving other financial markets and the broader economy unaffected. If used to tackle the overheated property market, interest rates may have to be raised substantially and this may cause damage to other economic sectors. Targeted and sector-specific policies relating to housing supply, and macro-prudential and demand management measures would be more appropriate tools for tackling property market overheating.

LERS remains appropriate for Hong Kong, being a small and open economy (see 5). Although pegging to a basket of currencies has the benefit of being less exposed to sharp swings in the exchange rate and interest rates of a single anchor currency, Hong Kong has already benefited from a largely