New HKMA chief must maintain steady course
A change of regime often raises concerns and anxieties. As the new chief of the Hong Kong Monetary Authority, few doubt that Norman Chan Tak-lam knows his job. He had worked for years as a deputy to outgoing chief executive Joseph Yam Chi-kwong. But the shoes of his formidable predecessor are big ones to fill.
Mr Yam's chief legacy will be his commitment to the currency peg and the independence of the HKMA from government interference. Mr Chan will do well to uphold and defend both. Recent financial scandals have, however, blemished Mr Yam's otherwise stellar record. The controversy over minibonds and Octave Notes has exposed cracks in our regulatory system. The authority is partly to blame for the lax supervision of the banks that sold those products. Therefore, regulatory reform must be on top of Mr Chan's agenda.
The leadership transition takes place at a time when the economy is still reeling from the global financial crisis; and Mr Chan comes to the job with some disadvantages. To start with, the manner in which he was chosen has raised eyebrows. As a former election campaign manager for Chief Executive Donald Tsang Yam-kuen and currently his office director, Mr Chan is generally considered a close government ally. Before naming him to the post, the government conducted a headhunt, a process Financial Secretary John Tsang Chun-wah defended yesterday as fair but which many critics regard as a charade. To placate the doubters, Mr Chan has accepted lower pay than Mr Yam and limited his term to five years. These were sensible steps to take, although his pay of up to HK$7.5 million a year will still make him better paid than any central banker in the world.
In a sense, the authority's independence is not as important here as in other parts of the world because the Hong Kong dollar's peg to the greenback means it has in effect outsourced monetary policy to the US Federal Reserve. But the authority's exchange fund - used to defend the peg - has assets in excess of HK$1 trillion. As a public fund manager, Mr Chan's priority must be the fund's long-term health. The government should not dip into the fund for political purposes: something it has shown a willingness to do. This year, apparently at Beijing's request, it had no qualms in asking the HKMA to commit HK$33 billion to a regional financial-stabilisation fund under the Association of Southeast Asian Nations. The government may well consider part of the exchange fund - especially the fiscal reserves - as its own. If so, it should put the reserves back on its own balance sheet so they would be subject to proper legislative scrutiny. At the very least, Mr Chan should clarify the reserves' status.
Time and again, doubts have been raised about the peg's future. Beijing's public challenge to the reserve currency status of the US dollar may reopen this debate. It is promoting the use of the yuan as a regional trading currency and has raised the possibility of making it a reserve currency in future. But that prospect is a long way off and will not change while the yuan remains a controlled currency. In the meantime, Mr Chan's job will be to maintain confidence in the peg.