The Hong Kong Monetary Authority (HKMA) is Hong Kong's central banking institution. It is a government authority founded on 1 April 1993 when the

Office of the Exchange Fund The Hong Kong Monetary Authority (HKMA) is Hong Kong's central bank, central banking institution. It is a government authority founded on 1 April 1993 when the Office of the Exchange Fund and the Office of the Commissioner of Banking merged. Th ...

and the Office of the Commissioner of Banking merged. The organisation reports directly to the Financial Secretary.

Responsibilities

The exchange fund was established and managed originally by the Currency Ordinance in 1935, now named the Exchange Fund Ordinance. Under the Ordinance, the HKMA's primary objective is to ensure the stability of the Hong Kong currency, and the banking system. It is also responsible for promoting the efficiency, integrity and development of the financial system.Noel Fung
Government power over Exchange Fund's stability role under review
, The Standard, 18 November 1997 The HKMA issues

banknotes A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...

only in the denomination of ten Hong Kong dollars. The role of issuing other banknotes is delegated to the note-issuing banks in the territory, namely

The Hongkong and Shanghai Banking Corporation The Hongkong and Shanghai Banking Corporation Limited (), commonly known as HSBC (), was the parent entity of the multinational HSBC banking group until 1991, and is now its Hong Kong-based Asia-Pacific subsidiary. The largest bank in Hong K ...

Standard Chartered Bank Standard Chartered plc is a multinational bank with operations in consumer, corporate and institutional banking, and treasury services. Despite being headquartered in the United Kingdom, it does not conduct retail banking in the UK, and around ...

and

Bank of China The Bank of China (BOC; ) is a Chinese majority state-owned commercial bank headquartered in Beijing and the fourth largest bank in the world. The Bank of China was founded in 1912 by the Republican government as China's central bank, repl ...

Policies

The official reserves of Hong Kong and the banking system are important underpinnings of the linked exchange rate system.

Tools

Since 1995, the HKMA has entered into a stability pact with central banks in Malaysia, Thailand, Indonesia and Australia to engage in

repurchase agreement A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...

s, which provide liquidity on a two-way basis.

Infrastructure

The Central Moneymarkets Unit (CMU), established in the 1990, provides computerised clearing and settlement facilities for Exchange Fund Bills and Notes. It extended the service to other Hong Kong dollar debt securities in late 1993. A seamless interface allow the co-existence of the CMU and the newly launched

real-time gross settlement Real-time gross settlement (RTGS) systems are specialist Electronic funds transfer, funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a "gross (economics), gross" ba ...

(RTGS) inter-bank payment system. This enables end-of-day

delivery versus payment Delivery versus payment or DvP is a common form of settlement for securities. The process involves the simultaneous delivery of all documents necessary to give effect to a transfer of securities in exchange for the receipt of the stipulated payment ...

(DVP) services as opposed to

Non-DVP Non-DVP trading is defined as securities trading where a client's custodian will have to release payment or deliver securities on behalf of the client before there is certainty that it will receive the counter-value in cash or securities, thus incur ...

. In 2018, HKMA developed the infrastructure for the

Faster Payment System Faster Payment System (FPS; , more commonly known as 轉數快) is a real-time gross settlement payment system in Hong Kong that connects traditional banks and electronic payment and digital wallet operators. Users are able to perform instant mo ...

and launched it in September of that year.

Banking licenses

Banking stability mainly depends on the banking system and supervision. A three-tier banking system (銀行三級發牌制度) was implemented in the 1980s. Institutions are also managed differently depending on whether they are categorised as licensed banks, restricted license banks or deposit-taking institutions. Overseas banks may also establish local representative offices in Hong Kong. In 2019, the HKMA began issuing the first batch of

virtual bank A direct bank (sometimes called a branch-less bank or virtual bank) is a bank that offers its services only via the Internet, email, and other electronic means, often including telephone, online chat, and mobile check deposit. A direct bank has no ...

licenses in Hong Kong; these banks were not required to have physical branches in the city.

Monetary stability

Currency board system

It is included the Linked Exchange Rate System and noticeable features such as the Aggregate Balance, Certificates of Indebtedness and coins issued and the Outstanding Exchange Fund Bills and Notes. The Interest Rate Adjustment Mechanism is an automatic system that maintains the stability of the Hong Kong dollar exchange rate. Lately the HKMA has been disclosing the forecast change in the Aggregate Balance attributes to increase the transparency of the Currency Board operation. In 1995, Nobel Prize–winning economist

Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...

mistakenly predicted the Hong Kong dollar's demise within two years of the 1997 handover. He also predicted the absorption of the territory's financial reserves of US$43 billion (HK$335.4 billion) by Beijing, which would not be able to bear the subrogation of Hong Kong's monetary policy to the United States. As with any monetary system not based on a

fiat money Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...

(which includes currency boards, currency unions and the traditional

gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...

) it is impossible to use monetary policy to stabilise the

business cycle Business cycles are intervals of Economic expansion, expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are ...

: this means that any macroeconomic adjustment has to be achieved by changes in the prices of assets and labour. In Hong Kong, this is made easier by two factors: the first is the openness of the economy, with an aggregate demand heavily dependent on international trading partners; this reduces the risk of classic

liquidity trap A liquidity trap is a situation, described in Keynesian economics, in which, "after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rathe ...

s. The second factor is the scarce political clout of the trade unions, which makes it easier to trim the nominal salaries during recessionary times. Moreover, the high saving rates and the moral stigma attached to bankruptcy have kept relatively low the level of defaults on mortgages even during the deep recessions after the

1997 Asian financial crisis The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998–1 ...

and the

SARS Severe acute respiratory syndrome (SARS) is a viral respiratory disease of zoonotic origin caused by the severe acute respiratory syndrome coronavirus (SARS-CoV or SARS-CoV-1), the first identified strain of the SARS coronavirus species, ''sever ...

epidemic in 2002/2003.

Exchange fund

''For more information, please look at

Exchange Fund (Hong Kong) The Exchange Fund of Hong Kong is the primary investment arm and de facto sovereign wealth fund of the Hong Kong Monetary Authority. First established in 1935 in order to provide backing to the issuance of Hong Kong dollar banknotes, over the yea ...

page.'' Under colonial rule, the HKMA did not place funds with local banks not rated by

Moody's Investors Service Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides international ...

Standard & Poor's S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is con ...

. Only the three note issuing banks could receive deposits because they had been rated by "objective international standards". During the

, currency speculators sold the Hong Kong dollar heavily and shorted local stocks and

Hang Seng Index The Hang Seng Index (HSI) is a freefloat-adjusted market- capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator ...

futures. The government controversially used the exchange fund to acquire HK$120 billion (US$15 billion) worth of blue-chip shares in a two-week market intervention, beginning 12 August 1998 with the aim of punishing and deterring currency speculators. The intervention was widely criticised as being detrimental to the reputation as one of the world's financial centres. Instead of being a regulator, the government has become "a player, a very key player". In hindsight, one speculator said, "Government intervention raised public confidence in the market when it was near total collapse. It prevented a bigger crisis and saved the market." Hong Kong Monetary Authority

Most stocks acquired during that operation were successivel
disposed
with the creation of a tracker fund, the TraHK. That reduced the portfolio of HK equities to 5.3% of the reserves in 2003. However, the percentage crept back and had rise
above 10%
by the year 2006. In August 1998, as part of its wider remit to protect the currency, the authority lent the Thai government US$1 billion from the fund as part of a $17 billion bailout organised by the

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...

(IMF).

Headquarters

The HKMA's is headquartered in the International Finance Centre. It purchased fourteen floors in Tower 2. The 55th, 56th and the 77th to 88th floors were bought for US$480 million in 2001. An exhibition area, currently containing an exhibit of Hong Kong's monetary history, and a library of the Hong Kong Monetary Authority Information Centre occupy the 55th floor. The 88th floor of the tower contains the office of the chief executive of the HKMA, and is served by an individual lift.

Chief executive

The Chief Executive is appointed for a five-year term by the Financial Secretary, and is continuously renewable with no term limit.

List of chief executives

Deputy chief executives

The chief executive is supported by a number of deputy chief executives, shown below in order of appointment. # David Carse (1993–2003) #

Andrew Sheng Tan Sri Andrew Sheng (born 1946) is Hong Kong-based Malaysian banker, academic and commentator. He started his career as an accountant and is now a distinguished fellow of Fung Global Institute, a global think tank based in Hong Kong. He served a ...

(1993–1998) #

Norman Chan Norman Chan Tak-lam, GBS, JP (born 1954), is a Hong Kong banker, treasury official, and civil servant. Chan was Chief Executive of the Hong Kong Monetary Authority from 2009 to 2019. He previously served as Director of the Office of the C ...

(1996–2005) # Anthony Latter (1999–2003) # William Ryback (2003–2007) # Peter Pang (2004–2016) # Choi Yiu-kwan (2005–2009) # Eddie Yue (2007–2019) # Arthur Yuen (since January 2010) # Howard Lee (since February 2016) # Edmond Lau (2021–2022) # Darryl Chan (since November 2022)

Events

The Hong Kong Monetary Authority hosted the meeting of the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...

and IMF in 1997, at an estimated cost of HK$485 million. Yam hoped that hosting the event would cement Hong Kong's status as an international financial centre. He added: "The presence of the world's leading finance ministers, central bank governors and top commercial bankers in Hong Kong so soon after the change of sovereignty will help boost international and local confidence in Hong Kong".Sean Kennedy
Yam defends IMF cost
, ''The Standard'', 7 July 1995 The HKMA is also host to the 2022

Global Financial Leaders' Investment Summit The Global Financial Leaders' Investment Summit is a financial summit to be hosted in Hong Kong by the Hong Kong Monetary Authority (HKMA), scheduled for 1–3 November 2022. Background The initiative was announced by Financial Secretary Paul C ...

References

External links

* {{Authority control Financial regulatory authorities of Hong Kong

Hong Kong Monetary Authority The Hong Kong Monetary Authority (HKMA) is Hong Kong's central bank, central banking institution. It is a government authority founded on 1 April 1993 when the Office of the Exchange Fund and the Office of the Commissioner of Banking merged. Th ...

Banknote issuers of Hong Kong 1993 establishments in Hong Kong