Exchange Rate System Upgraded

Hong Kong’s Monetary Authority Chief Executive Joseph Yam has announced measures to improve the operation of the Link Exchange Rate System.

The refinements introduced to the operation of the Linked Exchange Rate System are designed to remove uncertainty, boost the smooth functioning of money and foreign exchange markets and reduce the Hong Kong dollar's use as a vehicle for speculation on renminbi revaluation.

The refinements comprise:

‧ the introduction with immediate effect of a strong-side Convertibility Undertaking by the authority to buy US dollars from licensed banks at 7.75

‧ the shifting of the existing weak-side Convertibility Undertaking by the authority to sell US dollars to licensed banks from 7.8 to 7.85, so as to achieve symmetry around the Linked Rate of 7.8

‧ within the zone defined by the levels of the Convertibility Undertakings, the authority may choose to conduct market operations consistent with Currency Board principles. These market operations shall be aimed at promoting the smooth functioning of the Linked Exchange Rate System, for example, by removing any market anomalies that may arise from time to time.

Financial Secretary Henry Tang of the Hong Kong Special Administrative Region said the refinements will contribute to enhancing monetary and financial stability, which is clearly in the public interest.

"The Government has no plan or intention to change Hong Kong's Linked Exchange Rate System," he said, adding that the refinements have taken into account changing market conditions and recent experience in the operation of the system.

Mr. Yam said that although Hong Kong's monetary conditions have been healthy, it is time to remove uncertainty on the strong side and improve the operating system as the economy is picking up and the city has been out of deflation since early this year.

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