
Hong Kong Banking System Group 2
Group Member List Lee Tsz Ho, Kenneth 053174 Ip Wing Chi, Joyce 053161 Chan Shing Yip, Thomas 053230 Leung Yuen Yan, Kathy 053183 Li Piu Nam, Bill 053162
Content • Introduction of Hong Kong Monetary Authority (HKMA) • Comparison ~ HKMA vs. European Central Bank ~ HKMA vs. Bank of Japan ~ HKMA vs. Bank of England • Conclusion
Introduction to HKMA • established on 1 April 1993 • by merging the Office of the Exchange Fund with the Office of the Commissioner of Banking
Main functions of HKMA • keeping the Hong Kong dollar stable • managing the Exchange Fund • promoting the safety of Hong Kong's banking system • developing Hong Kong's financial infrastructure to enable money to flow smoothly, freely and without obstruction
The HKMA's policy objectives • to maintain currency stability • to promote the safety and stability of the banking system • to enhance the efficiency, integrity and development of the financial system
Supervision of liquidity • Basle Committee on Banking Supervision • maintain adequate liquidity and capital adequacy ratios • Minimum monthly average liquidity ratio of 25%.
Banknotes • issued by the three note-issuing banks • BOC, HSBC, Standard Chartered • required to submit US dollars (at HK$7.80=US$1) to the HKMA Hong Kong dollar banknotes are fully backed by US dollars held by the Exchange Fund
Coins and Ten dollars banknotes • issued by the Government through the HKMA • settled against US dollars at the rate of HK$7.80 to one US dollar fully backed by US dollars
Comparison HKMA and the Central Bank in Different Countries
Comparison • They are … ~ European Central Bank (ECB) ~ Bank of Japan (BOJ) ~ Bank of England (BOE)
Comparison HKMA and ECB
Comparison between HKMA and ECB • Similarity ~ Aim : to maintain the price stability ~ Supervision of liquidity (監察流動資金 充足程度)
Comparison between HKMA and ECB • Difference ~Copyright of banknotes and coins
Comparison HKMA and BOJ
Background of Bank Of Japan • Central bank of Japan • Juridical person established based on the Bank of Japan Law • Not a private corporation • Consists of 3 parts: • The Policy Board • Bank Executives • Departments, Branches, Local Offices in Japan, and Overseas Representative Offices
Decision making • Basic stance for monetary policy is decided by the Policy Board at Monetary Policy Meetings (MPM) • the Policy Board: • Discusses economic and financial situation • decides the guideline for money market operations • announces decisions immediately after the meeting
Open Market Operation • Monetary policy that involves the buy and sell of securities • influences the volume of money: • By buying and selling Japanese Government securities (JCG) mainly.
Objectives • Main aim: • maintain the price stability as it provides the foundation for the nation's economic activity. • The Bank of Japan Law states that the objectives should be "aimed at, through the pursuit of price stability, contributing to the sound development of the national economy."
Duty • monitor commercial banks and supervised their activity to provide a good business environment
Currency issued • Issuing all of its region’s currency including • 10,000yen, 5,000yen, 2,000yen, 1,000yen bank notes • 500yen Nickel-brass, 100yen Cupro-nickel, 50yen Cupro-nickel, 10yen Bronze, 5yen Brass and 1yen Aluminum Coin • Japanese Government Securities
Role • acts as the government bank: • such as treasury funds and Japanese government securities (JGS) services. The Bank accepts deposits (treasury funds) from the government as government deposits
Clearing • three clearing systems: • the Zengin Data Telecommunication System(retail credit transfers) • the Foreign Exchange Yen Clearing System (FXYCS)(mainly yen legs of foreign exchange transactions) • bill and cheque clearing systems (BCCSs)(bills and cheques collected at regional clearing houses)
Comparison Bank of England and HKMA
Bank of England • Central Bank of : United Kingdom • Established in : 1694 • Headquarters : London • Current Inflation : 3.1%(next due : 15thMay,07) • Inflation Target : 2.0% Bank of England Resource: http://en.wikipedia.org/wiki/Bank_of_england
Same main objective Comparison -- Similarity • HKMA : • the HKMA is the government authority in Hong Kong responsible for maintaining monetary and banking stability • Bank of England : • the bank is committed to promoting and maintaining monetary and financial stability as its contribution to a healthy economy
Bank of England : debate on issues relating to the international financial architecture The HKMA : effectively measure and report on the risks of major functions, products or business activities Comparison -- Similarity Cautious general risk management policy
Bank of England : takes a role as a central bank considers risks across the system as a whole The HKMA : is the government authority in Hong Kong but not taking the role as the central bank Comparison -- Difference Role as central bank
Bank of England : has the power to give instructions to the bank on interest rates for a limited period has to meet the inflation target by setting an interest rate The HKMA : no right to set the interest rate and inflation target is primarily determined by the Fed to suit the US Comparison -- Difference Control the interest rate
Bank of England : has been issuing banknotes for over 300 years gaining and maintaining public confidence in the currency is a key role The HKMA : does not own the right to issue banknotes (except $10 banknotes) but the copyright of coins is handed by HKMA Comparison -- Difference Copyright of banknotes
Conclusion Which monetary system works better out of the above comparison?
Conclusion • The aims of the four central banks are most likely the same • Similar supervision approach on banking system by risk management • Main difference is the issue of notes and coins
What HKMA Wins • Enjoy the highest degree of freedom • Not controlled by the government • An independent authority • Will not be easily influenced by the government • Report to the public directly
What HKMA Wins (Cont’d) • Promotes free market • Let the interest rate flow • Rarely interfere the market
Our Suggestions • Focus more on the business morals of the banks • Prevent discriminations • E.g. Serving the rich only • Develop a fine supervisory system over the e-banking • Prevent counterfeit money
Reference (Cont’d) Books: • T.Y. Choi, Eric F.K. Chiu (1994) Hong Kong Banking System and Practice. The Chartered Institute of Bankers, HK. • T.K. Ghose (1995) The Banking System of Hong Kong. Butterworth. • Study Group of the Chinese Banks’ Association (1988) Hong Kong’s Banking System in Transition: Problems, Prospects, and Policies. Asian Research Service • Chen Jianhua (1998) Hong Kong Finance Development in the Future. Guo Shiping. (P.27-31)
Reference • The Hong Kong Monetary Authority Homepage • http://www.hkma.com • Bank of Europe Homepage • http://www.ecb.int/mopo/intro/html/operational.en.html • The Bank of England Homepage • http://www.bankofengland.co.uk • The Bank of Japan • http://www.boj.or.jp/ • Profiles of Hong Kong Major Service Industries (Banking) • http://www.toletrade.com/main/si/spbank.htm • Economic Forum (3, Feb, 2005, “A to Z of Money and Banking”) • http://www.tdctrade.com/econforum/hkma/hkma050201.htm • Economic Forum (22, April, 2004, “Sharing Credit Information”) • http://www.tdctrade.com/econforum/hkma/hkma040404.htm
Reference (Cont’d) Journal, Magazine, Newspaper, and others • Speech by the Chief Executive of HKMA (Fri, 20-10-2006) • <<One Country, Two financial systems>> • Speech by Executive Director (Banking Policy), (7 September 2006) Simon Topping<< Enhancing disclosure by Hong Kong banks>> • SCMP by Louis Beckerling (10-5-2006) • <<Size matters for lenders wanting to stay on top>> • SCMP by Tvonne Liu (23-8-2006) • <<Demand soars for Central office space>> • SCMP by Louis Beckering (15-12-2005) • <<Sweeteners for deposits could turn sour>> • Journal of Economic Issues by Forder, James • <<Why Is Central Bank Independence So Widely Approved? >> • Journal of Post Keynesian Economics by Fontana, Giuseppe • <<The Federal Reserve and the European Central Bank: a theoretical comparison of their legislative mandates>> • Speech by Andrew Sheng of Deputy Chief Executive Hong Kong Monetary Authority • <<Financial Regulation>>