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Hong Kong Banking System

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  1. Hong Kong Banking System Group 2

  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

  3. What is the Central Bank in Hong Kong?

  4. The answer is Hong Kong Monetary Authority.

  5. 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

  6. Introduction of HKMA

  7. Introduction to HKMA • established on 1 April 1993 • by merging the Office of the Exchange Fund with the Office of the Commissioner of Banking

  8. 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

  9. 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

  10. Supervision of liquidity • Basle Committee on Banking Supervision • maintain adequate liquidity and capital adequacy ratios • Minimum monthly average liquidity ratio of 25%.

  11. 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

  12. 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

  13. Comparison HKMA and the Central Bank in Different Countries

  14. Comparison • They are … ~ European Central Bank (ECB) ~ Bank of Japan (BOJ) ~ Bank of England (BOE)

  15. Comparison HKMA and ECB

  16. 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)

  17. Comparison between HKMA and ECB • Difference ~Copyright of banknotes and coins

  18. Hong Kong Banknotes

  19. European Banknotes

  20. Comparison HKMA and BOJ

  21. 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

  22. 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

  23. 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.

  24. 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."

  25. Duty • monitor commercial banks and supervised their activity to provide a good business environment

  26. 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

  27. 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

  28. 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)

  29. Comparison Bank of England and HKMA

  30. 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

  31. 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

  32. 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

  33. 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

  34. 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

  35. 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

  36. Conclusion Which monetary system works better out of the above comparison?

  37. 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

  38. 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

  39. What HKMA Wins (Cont’d) • Promotes free market • Let the interest rate flow • Rarely interfere the market

  40. 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

  41. 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)

  42. 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

  43. 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>>

  44. ~END~Thankyou!!