In many ways the Hong Kong Monetary Authority represents the SAR at its best. The authority is modern, market-focused and professional. It has developed some of the best financial infrastructure in Asia. Its chief executive, Joseph Yam Chi-kwong, is an urbane bureaucrat who is well-paid, but has delivered results. Alone in Asia, Hong Kong defended its dollar peg while minimising collateral damage to financial institutions.
Elsewhere, such performance has been rewarded by making central banks independent of politicians. Hong Kong is different because its currency board gives the authority no formal discretion in managing interest rates or the money supply. It is often said that a currency board needs one man in an office to run it. Mr Yam, however, seems to hanker for a bigger role and dislikes meddling legislators who criticise his empire building. That a proposed committee to monitor the authority's performance will not include lawmakers reveals plenty. Although not strictly required to, Mr Yam submits himself to Legislative Council grilling. This seems a sop to compensate for the authority's democratic deficit. When making policy changes, Mr Yam reports only to the Financial Secretary and committees stuffed with senior bankers.
Authority officials hated legislators' criticism of the $3.7 billion purchase of swish new office space. Never mind that the sum exceeded the SAR's total annual education budget. Setting up a committee to monitor its performance and officials' pay seems like an attempt to side-step Legco in future. Yet the need for public scrutiny has never been greater. Full interest rate deregulation has raised acute consumer rights concerns as banks move to fee-based charging. A planned deposit insurance scheme could become an unwieldy beast. More importantly, the post-1998 crisis introduction of a banking discount window allows the authority to manage monetary conditions and assume a 'creeping' central banking role. Currency board purists argue that the liquidity facility corrupts the discipline of a self-adjusting monetary system. Mr Yam counters that the authority is merely ironing out monetary bottlenecks to avoid ruinous interest rate spikes of the sort that occurred in October 1997.
This is debatable, but the breadth of the authority's enlarged empire demands full accountability. United States federal reserve governor Alan Greenspan is regularly grilled before lawmakers and derives much of his authority from these artful performances. Mr Yam should look and learn.