HKMA chief calls for review of financial stability arrangements
Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong called for a review of the city's financial stability arrangements, including extending the liquidity mechanism, as the present law may constrain the ability of the financial secretary to handle crises.
In his weekly column on the authority's website yesterday, Mr Yam said the Exchange Fund Ordinance allowed Financial Secretary John Tsang Chun-wah to use the fund to maintain the city's financial stability with the aim of protecting Hong Kong's role as a financial centre.
However, the law might also tie his hands 'when he faces an issue that is not expected to affect the status of Hong Kong as an international financial centre, yet has financial-stability implications', Mr Yam said.
However, Sin Chung-kai, a lawmaker from the Democratic Party, said the law had given Mr Tsang enough power to handle crises.
'The government under the Exchange Fund Ordinance intervened in the stock market in the 1998 Asian financial crisis. This showed the law has not restricted the financial secretary to carry out his duty. I wonder if it needs more relaxation,' Mr Sin said.
Former Financial Secretary Donald Tsang Yam-kuen, now Chief Executive, spent HK$118 billion from the Exchange Fund in 1998 to buy stocks to support the market and to fend off the hedge funds attacking the stock market and the currency.
Mr Yam said he was not 'suggesting that the existing arrangements are in any way inadequate', although there was room for improvement.
One way to improve was an extension of the liquidity-support mechanism, currently designed for banks, to other institutions crucial to the systemic stability of the financial system, he said. The review should also look at whether the central bank should play a bigger role in maintaining financial stability.
'In fact, our openness, our small size and our lack of a captive economic hinterland that naturally subscribes to our financial services make this task significantly more difficult for us than it is for others. We simply cannot afford to be complacent,' Mr Yam said.
