Even though we cannot be too precise in quantifying in advance the amount of resources we need, we can certainly shore up our defence capability and resilience in good times.
Norman Chan Tak-lam
Chief executive, Hong Kong Monetary Authority
Firm foundations, SCMP, Feb 18
Norman spent a long, long time waiting in the wings for the top job at the HKMA and, now that he has it, he's not about to let anyone take away even a cent from that miser's hoard over which he presides.
It's a hoard of HK$1.26 trillion - more than HK$500,000 for each and every household in this town, and it's all ours.
It's what we have built up in accumulated fiscal savings and investment earnings in the Exchange Fund. It excludes all money owing to others.
Norman manages it and he wants to keep his hands on it ... all of it. To do this, however, he has resorted to some, ahem, shall we say, confusions.
For instance, when he says that 'we cannot be too precise in quantifying in advance the amount of resources we need', he has not mentioned that three years ago the HKMA received advice on that very point from the International Monetary Fund.
The IMF came out with a 30 to 50 per cent target ratio for free fiscal reserves to gross domestic product. It also said there could be a significant reduction in this desired reserve level if steps were taken to smooth out the earnings from the reserves. These steps were subsequently taken.
Now here comes the punchline. As of the latest release of data, free fiscal reserves amount to a record 71 per cent of GDP. We have far more than the IMF says we need.
Why did you choose not to tell us this when saying you cannot quantify what we need, Norman? Can your fingers not loosen their grip? Is that why?
Don't tell me that this IMF report is news to you. You haven't done the homework for your job if it is.
Then we have him saying that the Exchange Fund is not a sovereign wealth fund and can only be used to support the Hong Kong dollar and financial stability.
I wasn't aware that its purposes are so tightly restricted. Nor is our financial secretary. He takes a chunk out of it every year as its investment income contribution to his budget and uses the money for whatever he likes, not just support for the currency and financial stability.
It's true that just over HK$1trillion in the fund is there as backing for the currency and as ammunition for the HKMA to shoot down foreign exchange speculators. But it's an odd notion that our fiscal savings, which are also parked in the Exchange Fund, are equally to be used only for these purposes.
Would you care to cite chapter and verse for this unusual assertion, Norman, or shall we just put it down as another of your confusions?
Here is one more of them: 'With the solid backing of the Exchange Fund, Hong Kong people and international investors maintained a high level of confidence in our banking system, even during the peak of the global financial crisis.'
That's what we call a convenient rewrite of history.
The reason Hong Kong sailed relatively easily through the 2008 financial crisis (and it was not actually as plain sailing as all that) is because we hadn't yet got over the 1997/98 one, and were not yet in a position to blow financial bubbles. Average prices in the property market, for instance, were still well below 1997 levels.
At heart, it is Norman's view that he must keep his hands on all the money because we have an obligation to guarantee the complete safety of our banking system's HK$6.7 trillion in deposits, irrespective of whether the people who hold these deposits have anything else to do with Hong Kong. Many of them don't. Half the deposit base is foreign currency.
If we have such an obligation, however, I would like to hear of it. It does not exist in law and a temporary pledge that the financial secretary made to it has now expired.
All we have is a deposit guarantee scheme with a net asset value of about HK$1.2 billion, less than two-tenths of one per cent of the size of the deposit base.
It's just as well anyway. When you nationalise the liabilities side of a banking system by guaranteeing deposits but leave the existing bankers to run the asset side, you invite disaster. For current proof of this, go pay a visit to Ireland.
You invite disaster, Norman, not avert it. If you want to be Hong Kong's central banker, you would do well to spend a few days working in a real bank.