• Fri
  • Sep 19, 2014
  • Updated: 4:01pm
NewsHong Kong

Every penny of HK$3 trillion Exchange Fund needed for ‘crises’, says HKMA chief

Lawmakers had argued there is enough money to maintain financial stability and that surplus could be spent on social welfare and infrastructure

PUBLISHED : Monday, 28 July, 2014, 4:31pm
UPDATED : Tuesday, 29 July, 2014, 1:31pm

The head of Hong Kong’s de facto central bank has rejected calls from some lawmakers to use part of the city’s HK$3 trillion Exchange Fund to pay for infrastructure projects or social welfare.

Norman Chan Tak-lam, the chief executive of the Monetary Authority, said the fund needs every penny to cope with unexpected financial crises.

Some HK$800 billion of the fund is needed to back Hong Kong’s monetary base and underpin the currency peg to the US dollar.

Most of the rest consists of the government’s reserves and the fund’s own accumulated surpluses.

The fund has grown from HK$350 billion in 1993 to HK$3 trillion, prompting suggestions that there is more than enough money to maintain financial stability and that the surplus could be put to use now.

But Chan said the experience of the global financial crisis in 2008 showed that the government should be ready for every eventuality.

The government decided to provide a full guarantee for HK$5.8 trillion of deposits in 2008. The total assets of the local banking sector had grown to HK$17 trillion at the end of last year, Chan said.

“Without a sizable Exchange Fund to back the blanket guarantee, we could not have restored the confidence of depositors and the market to maintain financial stability [in 2008],” he wrote in an article posted on the authority’s website on Wednesday.

Chan also pointed out that in August 1998 the government intervened in the stock market to the tune of HK$118 billion in order to “drive away currency speculators”. At the time the local market cap was HK$2 trillion, now it is over HK$24 trillion.

Similar intervention now would require HK$1.4 trillion, Chan said.

“If the Exchange Fund did not hold sufficient assets we would not be in a position to undertake the necessary operation to protect Hong Kong against another speculative attack of this kind,” he said.

The returns on the fund's investments have also been criticised. Last year it managed a return of 2.3 per cent, below the rate of consumer inflation.

In the first three months of this year, its return was down 64 per cent from the same period last year.

Chan defended the returns, saying the fund had to invest in a “conservative and prudent manner” and could not take "excessive risks".

The AAA sovereign rating Standard and Poor’s gave to Hong Kong in 2010 was also due to the funds assets, Chan said.



More on this story

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive



This article is now closed to comments

I suppose it depends on your definition of "crises".
If Norman Chan was forced to move from his current accommodation to a 200 sf hole in the concrete, he would probably qualify this as a disastrous personal "crisis".
However, if someone was forced to move from their cardboard box under a flyover or a cage room into the same 200 sf, they would be over the moon and most appreciative.
Perhaps Mr Chan needs to get out of the ivory tower occasionally and experience how the other 99.99% live. and learn some compassion.
He is not alone, in this regard.
They should one night just re-peg the HK $ to HK$7 to US$1. There will be some speculators who believe they could force it lower 9change once why not twice) but the HK government would be able to defend a reasonable peg than an unreasonable one as they are trying to do today. This will also reduce the Hot Money into HK and also take care of China tourists as prices would become more similar.
They jus need to pick a night. Not let anyone know. Change the peg. Put a law out that says peg cannot be changed in within 3 years and let the economy normalize.
Not enough money to build the fifth runway !
For the sake of runways, HKers have to work harder and harder.
Thank you, Mr. Chan,
In essence you are predicting a doomsday for Hong Kong. That's reassuring.
Ant Lee
HK people are so stupid and believe in all these government officials (like other developing country) . For developed countries (with democracy), there are many ways to implement policies to counter currency speculators. the most stupid way is to use tens of billions of the hard earned cash of its tax payers to "payoff" these speculators to maintain stability. Pathetic.
firstly, 90% the money in this fund was not earned by us taxpayers.
secondly, most of us taxpayers don't actually pay that much in taxes.
thirdly, most democracies around the world are in debt and would be jealous at the amount of reserves we have. Can you imagine the hell that would happen if there was a concerted effort to make a run on the US dollar?
fourthly, in 1997, most of those speculators came from those democracies in those developed countries that you were talking about.
Actually, speculator in chief then was one Li Ka Shing.
Ant Lee
1. I can't argue with you on your first point because I don't know
2. I can't agree with you. I paid lots of tax including in the form of land premium , an indirect tax that the HK Govt never considered a tax. I do because I paid the govt through the property developers. "HK is not exactly a tax haven" - a comment in a forum by De*****, H****** & S*** in the early 80s.
3. True every minister in developed world would envy our finance secretary for the reserve HK have. But their people would never envy the plight of HK people today.
4. You do not judge a political system in the way it makes money. You judge it by the way how its people live. No one will dare to run at the US$. Worry about the RMB first. That's why Beijing is smart.
Please don't mix things up.
Some people are so naive, no wonder there are supporters for OC.
Sharks, intruders, currency speculators worldwide are constantly looking for opportunities to benefit from the Hong Kong financial market. It takes a lot of effort and high precaution to protect and maintain a stable economy. This defence mechanism is utterly important, when fail, it will takes years and years to rebuild and regain stability. The ripple effect is immense, long and painful recession period, businesses down sizing or close down, record high unemployment rate, massive redundancy and more.
Look at some of the countries worldwide who are now in this situation, you will understand the logic behind.




SCMP.com Account