Hong Kong Monetary Authority Briefing to the Legislative Council Panel on Financial Affairs 3 January 2000 1
Y 2 K Wellness checks completed Banks operating as usual 2
Economic Recovery Real GDP Growth • • Strong rebound in Q 2 Forecast Q 3 growth: 4. 5% 3
Exchange Rates Effective Exchange Rate Indices • • REER back to pre-crisis level Not a strong impediment to competitiveness Dec 1997 1998 1999 4
Interest Rates Nominal Interest Rates • • Stable since September 1998 Premium over USD interest rates has narrowed 5
Interest Rates Real Interest Rates • • • Long-term rate still high but has come down Well below headline rate Not as serious an obstacle to recovery as sometimes is thought (% p. a. ) 14 12 10 8 6 4 2 0 -2 -4 -6 -8 Long-term expected real interest rate Headline short-term interest rate 10. 0 3. 7 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 6
Domestic Credit Bank Lending • • Domestic loans showed first rise in 17 months Should increase further with continuing economic recovery & resolution of GDE issue 1996 1997 1998 1999 7
Challenges and Opportunities Technology Globalisation Volatile Capital Flows Changing Financial Landscape Banks • Consolidation for scale Small Open Economies • Bigger markets • Strengthen own financial systems 8
Challenges and Opportunities International Reforms • • Risk Management • Transparency Code of Good Practices Regional Initiatives • • AMU? Technical Cooperation • Bond Market Domestic Responses • Self-strengthening 4 resources 4 market development 4 regulatory coordination 4 tighter rules 9
Challenges and Opportunities WTO Role w. Knowledge of China Principal HK HK w. Proximity: geography, culture, language HK Intermediary Nature Physical Industries (entrepot; manufacturing) Knowledge-based Industries (financial, telecom, prof. services) 1 0
Work Plan 2000 - Monetary 9/1998 -8/2000 7 Technical Measures Sub-committee on Currency Board Operations • Two-way convertibility • Transferability among Monetary Base components • Scheduled movement of CU rate of Aggregate Balance to 7. 80 • Currency options • Electronic money • Dollarisation 8/2000 onwards Convergence of Ongoing review Convertibility of system Rates 1 1
Work Plan 2000 - Monetary Possible Topics: • Competitiveness issues • Repercussions of Asian crisis on regional financial markets • Mainland’s financial developments and interface with Hong Kong • Monetary linkages among Asian economies 1 2
Work Plan 2000 - Banking Monitoring Indicators Interest Rate Deregulation July 2000 • Time deposits < 7 days Monitoring Indicators July 2001 • Savings account + • Current account 1 3
Work Plan 2000 - Banking Depositor Protection Factors • Increased Competition • Stability of the banking system • International Practice • Cost and moral hazard issues Plan 4 Consultancy Study in H 1 2000 4 Public Consultation Deposit Insurance? 1 4
Work Plan 2000 - Banking Credit Register Corporates Financing Request Central Credit Register Loans data Banks In-House Study in H 1 2000 1 5
Work Plan 2000 - Banking Consolidation • Market-based approach • HKMA, as supervisor, will facilitate • No mandated consolidation for healthy banks • Approaches to consolidation : 4 Alliance 4 Mergers and Acquisitions 1 6
Work Plan 2000 -Infrastructure USD Clearing HKMA HKD RTGS Settlement Institution USD RTGS USD Cheques Securities Trading in USD Bulk Clearing In phases in H 2 2000 a Enhance competitiveness as IFC a Enhance settlement efficiency a Enhance monetary stability 1 7
Work Plan 2000 HKMA in Community Accountability Transparency • Website, Bulletins, Publications • Public Education Programme Accessibility • Regular Briefings to Leg. Co • Exhibitions at Districts 1 8
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