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Monetary Stability The Linked Exchange Rate system Over the past three decades, the Linked Exchange Rate system has served as the anchor for Hong Kong’s monetary and financial stability and has proved highly resilient in a series of regional and global financial crises. The LERS was also strongly endorsed by the International Monetary Fund (IMF) in its annual Article IV consultation with Hong Kong as a simple, credible, transparent and widely understood exchange rate system that has contributed immensely to the maintenance of Hong Kong’s monetary and financial stability. To mark the system’s 30th anniversary in 2013, the Hong Kong SAR Government reiterated its full commitment to the LERS, with the HKMA reaffirming the merits of the system in an inSight article and publishing a set of Frequently Asked Questions to help the public develop a better understanding of the LERS. 1 The HKMA also illustrated that there continued to be very strong public confidence in the Hong Kong dollar as a means of payment and storage of value, with no signs or evidence of the currency being “marginalised” by the rise of the renminbi. 2 A sound banking system is crucial to the normal functioning of the LERS. During 2013, the HKMA continued to monitor closely banks’ management of credit and liquidity risks, property-related lending and stress-testing to ensure the resilience of the banking sector. To improve the transparency of the Currency Board Account, a specific portion of Exchange Fund assets has been allocated to back the Monetary Base since October 1998. The Backing Ratio (defined as the Backing Assets divided by the Monetary Base) moved within a tight range of 107-108% during 2013, without touching the Upper or Lower Trigger Level. The ratio closed at 107.4% on 31 December (Chart 4). Under the LERS, while specific Exchange Fund assets have been designated for the Backing Portfolio, all Exchange Fund assets are available to support the Hong Kong dollar exchange rate. The large amount of financial resources under the Fund provides a powerful backstop in protecting Hong Kong’s monetary and financial stability. Chart 4 Daily movement of the Backing Ratio in 2013 114 % 113 112 111 Upper Trigger Level 110 109 108 107 106 Lower Trigger Level 105 104 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1 Chan, Norman T.L. “The Linked Exchange Rate System – 30 Years On”, inSight, 14 October 2013, http://www.hkma.gov.hk/eng/key-information/ insight/20131014.shtml. 2 Chan, Norman T.L. “Foreign exchange turnover involving the Hong Kong dollar and Hong Kong dollar marginalisation”, inSight, 13 September 2013, http://www.hkma.gov.hk/eng/key-information/insight/20130913.shtml. Page 48 ANNUAL REPORT 2013 • HONG KONG MONETARY AUTHORITY
Other activities The EFAC Currency Board Sub-Committee monitors and reviews issues relevant to monetary and financial stability in Hong Kong. In 2013, the Sub-Committee considered issues including the liquidity and depth of the Hong Kong dollar exchange market, the risk in the US bond market and likely contagion impact on Hong Kong, the influence of the renminbi on Asian currencies, and the dynamics of the Hong Kong dollar-US dollar interest rate differentials and fund flows. Records of the Sub-Committee’s discussions on these issues and the reports on Currency Board operations submitted to the Sub-Committee were published on the HKMA website. The Hong Kong Institute for Monetary Research (HKIMR) continued to sponsor research in the fields of monetary policy, banking and finance. During the year, it hosted 22 research fellows and published 25 working papers. The Institute also organised seven international conferences and workshops. The main ones included: • The Fourth Annual International Conference on the Chinese Economy in January with the theme “The Role of Financial System Reforms in Rebalancing the Chinese Economy”. The conference covered a wide range of issues, such as China’s economic growth, the lending behaviour of state-owned banks, financial system reforms and China’s monetary policy, renminbi internationalisation, and the impact of labour market development on wages • The HKMA Symposium on Financial Stability in May, which dealt with issues related to financial stability, including the interactions between micro- and macroprudential policies, the role of rule and discretion in financial stability policy-making, the efficient and effective governance arrangements for financial stability policies, and the pros and cons of different institutional arrangements • The “HKMA 20th Anniversary Research Workshop” in June, designed to celebrate the HKMA’s 20th anniversary and featured research papers on the Hong Kong economy by HKMA staff. Major economic issues covered included the recent performance of the Hong Kong dollar foreign exchange market, the current account balance of Hong Kong, the Mainland exposure of Hong Kong banks, the demand and supply of mortgage loans and the role of loan-to-value ratio policy, and the development of the renminbi market in Hong Kong • The 36th Pacific Trade and Development Conference in December with the theme “Financial Development and Co-operation in Asia and the Pacific”. The conference examined issues affecting these economies, including financial reform and liberalisation, monetary policy frameworks, capital market developments, financial developments in Mainland China and their implication for the global economy, and prudential regulation and supervision in the region. The Institute co-hosted a conference on macroeconomics and international finance with the Hong Kong University of Science and Technology and the Eleventh HKIMR Summer Workshop on property markets with the Chinese University of Hong Kong. Moreover, it held the eleventh HKIMR conference on the Mainland economy focusing on the offshore renminbi market. The conferences and workshops were attended by participants from academia, the financial services industry and global central banks. In addition, the Institute held 35 public seminars on a broad range of economic and monetary issues. HONG KONG MONETARY AUTHORITY • ANNUAL REPORT 2013 Page 49
Page 1: 2013 Annual Report
Page 5 and 6: Contents 4 Highlights of 2013 6 Chi
Page 7 and 8: International Financial Centre Rese
Page 9 and 10: With this in mind, the HKMA continu
Page 11 and 12: THE HKMA AND THE HONG KONG SPECIAL
Page 13 and 14: Over the years the HKMA has progres
Page 15 and 16: Banking Advisory Committee The Bank
Page 17 and 18: Mr Lester HUANG, JP Managing Partne
Page 19 and 20: THE EXCHANGE FUND ADVISORY COMMITTE
Page 21 and 22: Terms of reference (1) To monitor t
Page 23 and 24: Terms of reference (1) The objectiv
Page 25 and 26: THE EXCHANGE FUND ADVISORY COMMITTE
Page 27 and 28: Terms of reference (1) To recommend
Page 29 and 30: THE DEPOSIT-TAKING COMPANIES ADVISO
Page 31 and 32: Stefan GANNON, JP General Counsel F
Page 33 and 34: HKMA Organisation Chart 1 January 2
Page 35 and 36: THE ECONOMY IN REVIEW Overview The
Page 37 and 38: Inflation Inflationary pressures, w
Page 39 and 40: trended downwards, while the value
Page 41 and 42: PERFORMANCE OF THE BANKING SECTOR T
Page 43 and 44: Asset quality The asset quality of
Page 45 and 46: As a result of the average qualifyi
Page 47 and 48: OBJECTIVES The overriding objective
Page 49: Money market Interbank liquidity re
Page 53 and 54: Chart 7 Banknotes in circulation at
Page 55 and 56: PLANS FOR 2014 AND BEYOND While the
Page 57 and 58: REVIEW OF 2013 Overview Amid uncert
Page 59 and 60: The HKMA continued to monitor the i
Page 61 and 62: Supervisor-driven stress testing pr
Page 63 and 64: Following a noticeable increase in
Page 65 and 66: Basel III (continued) Pillar 3 The
Page 67 and 68: Basel III (continued) and haircuts
Page 69 and 70: Basel III (continued) Participation
Page 71 and 72: Accounting standards The Internatio
Page 73 and 74: Treat Customers Fairly Charter The
Page 75 and 76: Table 3 Banking complaints received
Page 77 and 78: The HKMA is a member of the SWIFT O
Page 79 and 80: PLANS FOR 2014 AND BEYOND Superviso
Page 81 and 82: Basel III Capital standards Under t
Page 83 and 84: Recovery and resolution During 2014
Page 85 and 86: Development of Supervisory Policies
Page 87 and 88: In accordance with the payout refor
Page 89 and 90: OVERVIEW A divergent trend in growt
Page 91 and 92: developments in domestic and cross-
Page 93 and 94: Development of Islamic finance The
Page 95 and 96: Hong Kong’s financial infrastruct
Page 97 and 98: Chart 4 Euro RTGS system Chart 5 Re
Page 99 and 100: The RTGS system links with Shenzhen
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Money settlement service for invest
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PLANS FOR 2014 AND BEYOND The HKMA
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Pan-Asian CSD Alliance project The
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THE EXCHANGE FUND The Exchange Fund
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PERFORMANCE OF THE EXCHANGE FUND Th
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Chart 1 Investment return of the Ex
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CORPORATE DEVELOPMENT Media relatio
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Staffing The establishment of the H
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Temporary resources will continue t
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on the budget and recommends any ch
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OFFICE OF THE GENERAL COUNSEL The O
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The Exchange Fund Report of the Dir
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Report of the Director of Audit (co
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Exchange Fund - Statement of Compre
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Exchange Fund - Statement of Change
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Exchange Fund - Statement of Cash F
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Exchange Fund - Notes to the Financ
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28 June The HKMA issues a circular
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Annex Authorized Institutions and L
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Table A Major Economic Indicators (
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Table C Authorized Institutions: Do
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Table E Presence of World’s Large
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Table G Major Balance Sheet Items b
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Table I Loans to and Deposits from
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Table K Deposits from Customers All
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Table L Geographical Breakdown of N
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Reference Resources The HKMA Annual
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HONG KONG MONETARY AUTHORITY 55 / F
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