Hong Kong wants to keep its US$581 billion war chest for defending the currency instead of the economy, monetary chief says
- The Exchange Fund recorded its third-highest earning year on record at HK$197.8 billion last year
- The Hong Kong government is expected to receive HK$32.6 billion of income for last year’s Exchange Fund return but lawmakers wants more
The head of Hong Kong Monetary Authority has rejected lawmakers’ call to dip into the HK$4.5 trillion (US$581 billion) Exchange Fund to finance the government’s rescue packages for companies and individuals hard hit by the Covid-19 pandemic, saying such a move would hurt the fund’s ability to defend the local currency.
“With such a high investment income, can we use part of the earnings or the surplus funds to finance sectors which have been hard hit by the pandemic?” asked Ronick Chan Chun-ying, a lawmaker representing the banking sector. He was supported by several other lawmakers who spoke at a financial affairs panel meeting with the HKMA executives on Monday.
Th HKMA chief executive Eddie Yue Wai-man, however, made it clear that the Exchange Fund should only be used to maintain the stability of the financial market and the local currency peg.
“Once we start using the fund for other purposes, the market will speculate we may continue to take money out of the Exchange Fund in the future,” said Yue. “This may gradually affect the ability of the Exchange Fund to defend the peg.”
The government set up the Exchange Fund in 1935 to back the issuance of banknotes. After the HKMA was established in 1993, the de facto central bank has been investing the funds in stocks, bonds and overseas property.