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  • Dec 20, 2014
  • Updated: 11:13am
NewsHong Kong
GOVERNMENT SPENDING

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.

 

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This article is now closed to comments

53cfce62-f034-4693-a57a-4c5b0a320968
I think this would have been a far better piece of a journalism if the writer had actually done some analysis. For instance, how large is this reserve compared to HK GDP? 150%. That took about two minutes to find and calculate. How does it compare to other countries with large reserves? It's 50% larger than Singapore's (+2 minutes). What does the IMF actually recommend? 20-30% is already very cautious (+5 minutes). Even better - find this data before the interview and ask Mr Chan about it. Why does HK need 50% more than Singapore? Why 5x more than the IMF recommends? Or even ask, "what's the upper limit to how much you need? 200% of GDP? 300%?" Where does it stop? As it stands, this is a glorified press release with a criticism or two attached. [Edit: I've done a bit more research to get better numbers and turned it into a letter to the editor, see ****wp.me/p2EIti-nN]
asiaseen
He must be expecting one hell of a crisis.
Artie
Yup and John Tsang needs every penny as well from his mountain of cash. These cash mountains do make their jobs easy and sleep well at night ... so why would they want to give it up and spend it on HK people (for which it is suppose to benefit).
John Adams
What total and absolute rubbish, especially from a man in his position
virokick
Privatising profits , socialising losses.
Helping the rich with free insurance ( puts) at the expense of taxpayers.
BabyMan
Lets start saving some money with this chump's salary.
aplucky1
wow a self serving bureaucrat , what a shock
what a worthless buffoon
anthonygmail
Of course he would say that...he justifies his salary by the amount of reserves under "management".
.
Perhaps, he should be asking whether our banks should be allowed to have accumulated so many assets (a large proportion of which I guess are indirect loans to the mainland) and whether they should be bailed out if and when the mainland related loans turn sour.
johnyuan
The only lesson learned from the last Asia financial crises is to save up as much as possible for the rainy days. Money like power when it is not use is useless. What this young man who is in charge of Hong Kong’s wealth in trillions is inexperience about money and life in general. Yet he is the only one deriving benefit from his high salary from failing his job.
kctony
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.

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