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Hong Kong Monetary System

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

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  1. Hong Kong Monetary System HK’s Linked Exchange Rate System BY KWAN Kui Kwan

  2. 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

  3. 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

  4. Crisis

  5. 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

  6. 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

  7. Notes issued by Banks • The Hongkong & Shanghai Bank Corporation

  8. Notes issued by Banks • Bank of China

  9. Notes issued by Banks • Standard & Chartered Bank

  10. Government-issued HKD • Government appointed agent bank • agent bank responsible to store & distribute • settled against US dollars • HK$7.80 to US$1.00

  11. Notes issued by Government

  12. 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%

  13. Money Printer in HK

  14. Money Printer in HK

  15. Aggregate Balance • Aggregate Balance may varies • HKMA responds to the flow of HKD

  16. 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

  17. 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

  18. 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

  19. 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

  20. HK Monetary Authority

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