BANKERS last night broadly welcomed the Monetary Authority's currency-board package, saying it could significantly enlarge the monetary base for defence against speculative attacks on the Hong Kong dollar. Its undertaking to convert clearing accounts at a fixed exchange rate, and the rule to allow unlimited use of the borrowing facility at the new Discount Window will greatly improve short-term liquidity to counteract manipulation of interest rates. Previously, with an outstanding balance of $1.8 billion in the Liquidity Adjustment Facility, a sell order of just $2 billion at $7.75 to the US dollar was enough to dry up liquidity and nudge interest rates higher. The new arrangement allows banks - as frequently as needed - to discount their holding of Exchange Fund notes with the authority for overnight funds at the new base rate. In principle, short-term liquidity has now been boosted to a level equal to the aggregate value of outstanding Exchange Fund notes which amounts to $100 billion, or at least $30 billion held by banks. Standard Chartered Bank regional treasurer Stanley Wong Yuen-fai said the measures should help stabilise short-term interest rates but not necessarily ease the rate. He said that, ultimately, if the authority were to adhere strictly to a currency board, interest rates would be determined by the inflow and outflow of capital. Dao Heng Bank general manager Tam Ping-shing said the Convertibility Undertaking would provide licensed banks with arbitrage opportunities in favour of the Hong Kong dollar should it come under further speculative attack. For example, when the Hong Kong dollar is under pressure and the overnight rate is pushed to 10 per cent, a licensed bank can sell US dollars for the local unit and earn the difference between United States and Hong Kong interest rates. The bank takes no exchange rate risk because of the authority's undertaking, but the move in itself can boost the Hong Kong dollar. Commonwealth Bank of Australia treasurer Andrew Fung Hau-chung said the new package would not enable supranational debt issues to be used at the Discount Window for the same price as Exchange Fund notes. This makes it more expensive for supranational issuers to raise funds in Hong Kong. Mr Fung said interest rates would probably come down after a brief period of volatility during which market participants would get used to the new arrangements.