Hong Kong Monetary Authority

1
Hong Kong Monetary Authority

• Briefing to
• the Legislative Council Panel
• on Financial Affairs

3 January 2000
2
Y2K

• Wellness checks completed
• Banks operating as usual

3
Economic Recovery
Real GDP Growth

• Strong rebound in Q2
• Q3 growth 4.5

Forecast
4
Exchange Rates
Effective Exchange Rate Indices

• REER back to pre-crisis level
• Not a strong impediment to competitiveness

Dec
1997
1998
1999
5
Interest Rates
Nominal Interest Rates

• Stable since September 1998
• Premium over USD interest rates has narrowed

6
Interest Rates
Real Interest Rates

• Long-term rate still high but has come down
• Well below headline rate
• Not as serious an obstacle to recovery as
  sometimes is thought

( p.a.)
14
12
Long-term expected real interest rate
10
Headline short-term interest rate
10.0
8
6
4
3.7
2
0
-2
-4
-6
-8
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
7
Domestic Credit
Bank Lending

• Domestic loans showed first rise in 17 months
• Should increase further with continuing economic
  recovery resolution of GDE issue

1996
1997
1998
1999
8
Challenges and Opportunities
Volatile Capital Flows
Technology
Globalisation
Changing Financial Landscape
Banks
Small Open Economies

• Bigger markets
• Strengthen own financial systems

• Consolidation for scale

9
Challenges and Opportunities
International Reforms

• Risk Management

• Transparency

• Code of Good Practices

Regional Initiatives

• AMU?

• Bond Market

• Technical Cooperation

Domestic Responses

• Self-strengthening

• resources
• market development
• regulatory coordination
• tighter rules

10
Challenges and Opportunities
WTO
Role
Principal

• Knowledge of China
• Proximity geography, culture, language

HK
HK
HK
Intermediary
Nature
Physical Industries
Knowledge-based Industries
(entrepot manufacturing)
(financial, telecom, prof. services)
11
Work Plan 2000 - Monetary
9/1998
9/1998 -8/2000
8/2000
8/2000 onwards
Sub-committee on Currency Board Operations
7 Technical Measures
Convergence of Convertibility Rates
Ongoing review of system

• Two-way convertibility
• Transferability among Monetary Base components
• Scheduled movement of CU rate of Aggregate
  Balance to 7.80
• Currency options
• Electronic money
• Dollarisation

12
Work Plan 2000 - Monetary
Possible Topics

• Competitiveness issues
• Repercussions of Asian crisis on regional
  financial markets
• Mainlands financial developments and interface
  with Hong Kong
• Monetary linkages among Asian economies

13
Work Plan 2000 - Banking
Interest Rate Deregulation
Monitoring Indicators
Monitoring Indicators
July 2001
July 2000

• Time deposits lt 7 days

• Savings account
• Current account

14
Work Plan 2000 - Banking
Depositor Protection
Factors
Plan

• Increased Competition
• Stability of the banking system
• International Practice
• Cost and moral hazard issues

• Consultancy Study in H1 2000
• Public Consultation

Deposit Insurance?
15
Work Plan 2000 - Banking
Credit Register
Corporates
Financing Request
Loans
Central Credit Register
data
Banks
In-House Study in H1 2000
16
Work Plan 2000 - Banking
Consolidation

• Market-based approach
• HKMA, as supervisor, will facilitate
• No mandated consolidation for healthy banks
• Approaches to consolidation
• Alliance
• Mergers and Acquisitions

17
Work Plan 2000 -Infrastructure
USD Clearing
HKMA
Settlement Institution
USD Cheques Securities Trading in USD Bulk
Clearing
HKD RTGS
USD RTGS
In phases in H2 2000

• Enhance competitiveness as IFC
• Enhance settlement efficiency
• Enhance monetary stability

18
Work Plan 2000 - HKMA in Community
Accountability
Transparency
Accessibility

• Website,
• Bulletins,
• Publications

• Public
• Education
• Programme

• Regular
• Briefings
• to LegCo

• Exhibitions
• at
• Districts