Fixed exchange rate will be maintained, Norman Chan committed

10-03-2009 07:09

Hong Kong’s pegged exchange rate will be maintained, pledged Norman Chan, the new head of the Hong Kong Monetary Authority (HKMA), as the Bank of China intervened for the first time under Chan’s regime in order to end the Hong Kong Dollar rally. The HKMA Chief Executive commented that his initial mission was “to preserve the stability of the currency market by means of upholding our pegged exchange-rate model.” The Hong Kong Monetary Authority invested 3.1 billion Hong Kong Dollar (400 million US Dollar) of funds into banks in order to stop the currency to rise above the pegged exchange rate.

Global finance center

Chan commented that he focused on continuing the city’s status as a global finance center and extending Hong Kong’s position in supporting China to endorse the Yuan’s utilization for trade transactions and foreign investments. The Chinese administration started this week Hong Kong’s first auction of Yuan-priced bonds, in order to access the HK 56.7 billion ($8.3 billion) in Yuan-denominated deposits at the city’s banks.

Most important task

Hong Kong has already experienced the selling of Yuan bonds this year by HSBC Asia-Pacific and the Bank of East Asia Limited (BEA), which were the initial auctions of Yuan bonds by overseas banks. The city of Hong Kong takes part in a test program regarding Yuan-priced trading transactions with Continental China.
Tim Condon, head of research Asia at ING Financial Markets, commented: “Preparing banks for a more intensive application of the Yuan in the region will be the most important task for Chan.” Condon expects that the Yuan will be slowly utilized for daily financial transactions in the global metropolis.

Fixed exchange rate

The Hong Kong Dollar was fixed at HK$7.8 against the US Dollar in 1983, as from the year 2005 it was validated to trade within HK$7.75 and HK$7.85, while this Friday it reached a level of HK$7.7501.
“There are still numerous question marks regarding the worldwide financial system and economy,” Chan commented. “The Hong Kong Monetary Authority has to deal with a large number of main tasks at this extraordinary moment.”
Chan was appointed in July as the HKMA’s new chief executive, succeeding Joseph Yam, one of the longest serving central bank chiefs in the world. Norman Chan is responsible for a currency reserve pool with a value of $223 billion, which is the eight biggest in the world. Joseph Yam, who served the post for 16 years, commented on August 26 that Chan will continue the pegged exchange rate.

Norman Chan

“The fixed exchange rate is a strong and flexible system and if Yam’s successor does not add any adjustments, he will not face many problems,” Condon commented.
The new central bank Chief Executive joined the Hong Kong Government Administrative Officer grade in 1976, after he graduated from the Chinese University of Hong Kong. In 1993 he became HKMA’s Executive Director as he was promoted to vice president in 1996.