SAR banks will not be required to store reserve cash with the Hong Kong Monetary Authority, following a decision taken by a senior advisory body.
The Exchange Fund Advisory Committee (EFAC) yesterday ruled out the imposition of reserve requirements on local banks because of the difficulty of implementing the scheme.
Although reserve requirements are imposed in the United States and Britain, an EFAC sub-committee says it is not an appropriate system for reducing interest rate volatility in Hong Kong.
'The sub-committee concluded that, since the practical difficulties considerably outweighed any benefits, reserve requirements were not appropriate as a liquidity buffer for Hong Kong, particularly in view of the fact that the current system was working well,' an HKMA announcement said.
Reserve requirements in the United States, Britain and France, force local banks to keep a certain amount of money with their respective central banks.
Some countries use the reserves to manage liquidity in the banking industry, while others use it as a safeguard to rescue troubled banks.