Tools

Since 1995, the HKMA has entered into a stability pact with central banks in Malaysia, Thailand, Indonesia and Australia to engage in repurchase agreements, which provide liquidity on a two-way basis.^[4]

Banking licenses

Banking stability mainly depends on the banking system and supervision. A three-tier banking system (銀行三級發牌制度) was implemented in the 1980s. Institutions are also managed differently depending on whether they are categorised as licensed banks, restricted license banks or deposit-taking institutions. Overseas banks may also establish local representative offices in Hong Kong.

In 2019, the HKMA began issuing the first batch of virtual bank licenses in Hong Kong; these banks were not required to have physical branches in the city.

Currency board system

It is included the Linked Exchange Rate System and noticeable features such as the Aggregate Balance, Certificates of Indebtedness and coins issued and the Outstanding Exchange Fund Bills and Notes.

The Interest Rate Adjustment Mechanism is an automatic system that maintains the stability of the Hong Kong dollar exchange rate. Lately the HKMA has been disclosing the forecast change in the Aggregate Balance attributes to increase the transparency of the Currency Board operation.

In 1995, Nobel Prize–winning economist Milton Friedman mistakenly predicted the Hong Kong dollar's demise within two years of the 1997 handover. He also predicted the absorption of the territory's financial reserves of US$43 billion (HK$335.4 billion) by Beijing, which would not be able to bear the subrogation of Hong Kong's monetary policy to the United States.^[5]

As with any monetary system not based on a fiat money (which includes currency boards, currency unions and the traditional gold standard) it is impossible to use monetary policy to stabilise the business cycle: this means that any macroeconomic adjustment has to be achieved by changes in the prices of assets and labour. In Hong Kong, this is made easier by two factors: the first is the openness of the economy, with an aggregate demand heavily dependent on international trading partners; this reduces the risk of classic liquidity traps. The second factor is the scarce political clout of the trade unions, which makes it easier to trim the nominal salaries during recessionary times.^[6] Moreover, the high saving rates and the moral stigma attached to bankruptcy have kept relatively low the level of defaults on mortgages even during the deep recessions after the 1997 Asian financial crisis and the SARS epidemic in 2002/2003.

Exchange fund

For more information, please look at Exchange Fund (Hong Kong) page.

Under colonial rule, the HKMA did not place funds with local banks not rated by Moody's Investors Service or Standard & Poor's. Only the three note issuing banks could receive deposits because they had been rated by "objective international standards".^[7]

During the 1997 Asian financial crisis, currency speculators sold the Hong Kong dollar heavily and shorted local stocks and Hang Seng Index futures. The government controversially used the exchange fund to acquire HK$120 billion (US$15 billion) worth of blue-chip shares in a two-week market intervention, beginning 12 August 1998 with the aim of punishing and deterring currency speculators.^[8] The intervention was widely criticised as being detrimental to the reputation as one of the world's financial centres. Instead of being a regulator, the government has become "a player, a very key player".^[9]

In hindsight, one speculator said, "Government intervention raised public confidence in the market when it was near total collapse. It prevented a bigger crisis and saved the market."^[10]

Most stocks acquired during that operation were successively disposed with the creation of a tracker fund, the TraHK. That reduced the portfolio of HK equities to 5.3% of the reserves in 2003. However, the percentage crept back and had risen above 10% by the year 2006.

In August 1998, as part of its wider remit to protect the currency, the authority lent the Thai government US$1 billion from the fund as part of a $17 billion bailout organised by the International Monetary Fund (IMF).^[3]

List of chief executives

Deputy chief executives

The chief executive is supported by a number of deputy chief executives, shown below in order of appointment.

1. David Carse (1993–2003)
2. Andrew Sheng (1993–1998)
3. Norman Chan (1996–2005)
4. Anthony Latter (1999–2003)
5. William Ryback (2003–2007)
6. Peter Pang (2004–2016)
7. Choi Yiu-kwan (2005–2009)
8. Eddie Yue (2007–2019)
9. Arthur Yuen (since January 2010)
10. Howard Lee (since February 2016)
11. Edmond Lau (2021–2022)
12. Darryl Chan (since November 2022)