THE Hong Kong Monetary Authority yesterday outlined the seven-part package of reforms to strengthen the currency board and end manipulation of local interest rates by speculators. The measures, which take effect tomorrow, will scrap the Liquidity Adjustment Facility and boost liquidity in the banking system. Under the package, the authority said it would give a 'convertibility undertaking' to all licensed banks to convert all Hong Kong dollars in their clearing accounts into US dollars at the fixed rate of HK$7.75 to the US dollar. The $7.75 rate has been chosen as it is the rate which triggers intervention by the authority. The HKMA will move the conversion rate to $7.80, which is the fixed exchange rate, when the exchange rate has strengthened slightly. From tomorrow, banks will be able to exchange Hong Kong dollars in their clearing accounts to US dollars at $7.75. However, banks have to make sure they have sufficient Hong Kong dollars in their clearing accounts. HKMA chief executive Joseph Yam Chi-kwong said the measures demonstrated the Government's commitment to the currency peg. Several of the measures in the package relate to the replacement of the Liquidity Adjustment Facility (LAF) with the Discount Window, which would radically change the close-of-day operations of the interbank market. The LAF was introduced in 1992, enabling banks to borrow overnight funds from the authority at the offer rate or lend surplus funds at the bid rate. The Discount Window, to be launched tomorrow, will allow banks to borrow at a new base rate, but will not receive any of their surplus funds. Mr Yam said this would prevent banks from keeping surplus funds until the end of the day in order to lend to LAF and manipulate interest rates. The move would encourage banks to lend out funds in the interbank market and so ease pressure on interest rates. The Discount Window would allow banks to use Exchange Fund bills and notes to obtain repos, increasing liquidity and the aggregate balance of the banking system. 'This new arrangement would force the speculators to short sell more than HK$30 billion before they could drive local interest rates up,' Mr Yam said. The aggregate balance previously stood at only HK$1.8 billion, enabling speculators to push interest rates up easily. Licensed banks hold about HK$60 billion of the HK$100 billion in Exchange Fund paper issued. While half of the HK$60 billion is used for the Real Time Gross Settlement system, Mr Yam said he believed there would be HK$30 billion of the paper available for Discount Window repos. The authority said it would also abolish restrictions on repeated borrowing. 'Repeated borrowers' are defined as those who had borrowed through the LAF more than eight times over a 25-day period, or used the facility on more than four consecutive days. Mr Yam said this would encourage the use of the Discount Window and thereby boost interbank lending and ease local interest rates. Mr Yam said banks providing funding for speculators would be denied access to the Discount Window. The stock exchange announced yesterday the suspension in short sales of HSBC Holdings, Hongkong Telecom and China Telecom (Hong Kong) would be lifted with effect from tomorrow.