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Hong Kong Monetary System. HK’s Linked Exchange Rate System BY KWAN Kui Kwan. History. 1863 - 1935 Silver Dollar (silver standard base – I nt ’ l C urrency ) 1935 – 1967 HK$16.00 to UK£1.00 (1935 Silver Crisis) 1967 – 1972 HK$14.55 to UK£1.00 1972 – 1973 HK$5.65 to US$1.00

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hong kong monetary system

Hong Kong Monetary System

HK’s Linked Exchange Rate System

BY KWAN Kui Kwan

history
History
  • 1863 - 1935 Silver Dollar
    • (silver standard base – Int’l Currency)
  • 1935 – 1967 HK$16.00 to UK£1.00
    • (1935 Silver Crisis)
  • 1967 – 1972 HK$14.55 to UK£1.00
  • 1972 – 1973 HK$5.65 to US$1.00
    • (1972 UK Gvn’t float UK£)
  • 1973 - 1974 5.085 to US$1.00
  • 1974 – 1983 free floating
crisis
Crisis
  • high volatility after free floating
  • Inflation from 2.7% (1975) to 15.5% (1980)
  • HK$5.13 to US$1.00 (1981) to HK$9.60 (1983)
  • September 1983 drop of 13% in 2 days
  • the future of Hong Kong (Return to PRC)
  • 15 October 1983 HK$7.80 to US$1.00
how it works
How it works?
  • Certificates of Indebtedness
    • back the banknotes issued by the banks
  • Government-issued notes and coins
    • banknotes issued by HKMA
  • Aggregate Balance
    • balances of the accounts of banks in HKMA
  • Exchange Fund Bills and Notes
    • issued by the HKMA
certificates of indebtedness
Certificates of Indebtedness
  • banks issue banknotes
  • required by law to purchase CoI
  • HK$7.80 to US$1.00
  • backing for the banknotes
  • HKD banknotes fully backed by USD
  • USD held by the Exchange Fund
notes issued by banks
Notes issued by Banks
  • The Hongkong & Shanghai Bank Corporation
notes issued by banks2
Notes issued by Banks
  • Standard & Chartered Bank
government issued hkd
Government-issued HKD
  • Government appointed agent bank
  • agent bank responsible to store & distribute
  • settled against US dollars
  • HK$7.80 to US$1.00
money printer in hk
Money Printer in HK
  • Hong Kong Note Printing Limited
  • Located in Tai Po Industrial Estate
  • Share Distribution
    • HKMA - 55%
    • China Banknote Printing & Minting Corp. – 15%
    • HK & Shanghai Banking Corporation – 10%
    • Standard Chartered Bank (HK) Ltd. – 10%
    • Bank of China (Hong Kong) Limited – 10%
aggregate balance
Aggregate Balance
  • Aggregate Balance may varies
  • HKMA responds to the flow of HKD
exchange fund
Exchange Fund
  • actively managed to achieve a higher return
  • long term investment
  • existing foreign currency reserves
    • 9th while the 1st is China, 2nd Japan, 3rd Russia
  • total assets of HK$1,997.80 billion
    • The Monetary Base HK$1,032.00 billion
exchange fund1
Exchange Fund
  • actively managed to achieve a higher return
  • long term investment
  • existing foreign currency reserves
    • 9th while the 1st is China, 2nd Japan, 3rd Russia
  • total assets of HK$1,997.80 billion
    • The Monetary Base HK$1,032.00 billion
mechanism
Mechanism
  • CAPITAL INFLOW
  • Market Participants buy HKD
  • Upward pressure on the HKD exchange rate
  • HKMA Currency Board sells HKD
  • Monetary Base of HK expands
  • Interest rates fall
  • HKD exchange rate stability achieved
mechanism1
Mechanism
  • CAPITAL OUTFLOW
  • Market Participants sell HKD
  • Downward pressure on the HKD exchange rate
  • HKMA Currency Board purchases HKD
  • Monetary Base of HK contracts
  • Interest rates rise
  • HKD exchange rate stability achieved
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