Internal promotion has reliably served HKMA in the past

In a sphere where the perception of stability is paramount, Hong Kong is fortunate to have had just two chiefs of its de facto central bank since the institution was established in 1993. The second, Norman Chan Tak-lam, will step down after 10 years in charge of the Hong Kong Monetary Authority in September. He has more than longevity in common with his predecessor, Joseph Yam Chi-kwong, to whom he was deputy for years. Each earned plaudits for their efforts to strengthen the city’s monetary and banking systems while maintaining the stability of the Hong Kong dollar and defending the peg to the US dollar.

Ironically, years after he had retired, Yam initiated debate on the future of the peg, prompting Chan to defend it. Six years after that debate Chan’s successor will inherit a more complex monetary and banking regulatory environment than that inhabited by Yam, or for the most part Chan. It will change even more following Beijing’s unveiling of the “Greater Bay Area” project to link Hong Kong and 10 southern cities in a global hub of innovation and technology.

The choice of the next HKMA chief is arguably no less important than that of the foundation head, who helped guide the city through financial crises, including an attack on the Hong Kong dollar, and that of the second, who shored up the banking system’s resilience to financial shocks after the global financial crisis. Internal appointees who understand the regulatory environment – Yam was a pre-HKMA monetary official – have served the authority and the city well. A selection panel under Financial Secretary Paul Chan Mo-po could do worse than stick to a proven formula and choose one of three deputies to Chan, unless a compelling external candidate emerges.

It remains a core mission to closely monitor the property market and safeguard the city’s financial stability. But the financial and investment ramifications of the bay area present new challenges, as do the fintech sector and “Belt and Road Initiative” developments. Thanks to Hong Kong’s open market and its pivotal financial position in the urban cluster plan, the next HKMA chief will have a role in safeguarding financial stability on both sides of the border. He will need a deep understanding of the financial demands and risks facing mainland China, which is deleveraging its economy while at the same time easing credit for infrastructure to combat a slowdown.

The second major challenge is digitalisation of banking, or the emergence in Hong Kong’s crowded physical banking market of a virtual banking hub. The HKMA is due to issue the first batch of virtual bank licences to a big field of candidates inflated by the attraction of the bay area. It has been updating regulations to ensure security and has run into some resistance to change. But with the city’s integration into the urban cluster project there is no room for compromise in risk assessments and safeguards.