HKMA CHIEF EXECUTIVE - EXCHANGE FUND NEEDED FOR ‘CRISES’

Norman Chan Tak-lam, the chief executive of the Monetary Authority, has rejected calls from lawmakers to use part of Hong Kong's HK$3 trillion Exchange Fund to pay for infrastructure projects or social welfare. Mr Chan stated the fund needs every penny to cope with unexpected financial crises.

Approximately HK$800 billion of the fund is needed to back Hong Kong’s monetary base and underpin the currency peg to the US dollar, the remainder comprises the government’s reserves and the fund’s own accumulated surpluses.

The fund has grown from HK$350 billion in 1993 to HK$3 trillion, prompting suggestions that there is more than enough money to maintain financial stability and that the surplus could be put to use now, but Mr Chan said the experience of the global financial crisis in 2008 showed that the government should be ready for every eventuality.

The government decided to provide a full guarantee for HK$5.8 trillion of deposits in 2008. The total assets of the local banking sector had grown to HK$17 trillion at the end of last year.

Mr Chan also pointed out that in August 1998 the government intervened in the stock market to the tune of HK$118 billion in order to "drive away currency speculators." At the time the local market cap was HK$2 trillion, now it is over HK$24 trillion. Similar intervention now would require HK$1.4 trillion.

The returns on the fund's investments have also been criticised. Last year it managed a return of 2.3%, below the rate of consumer inflation.

In the first three months of this year, its return was down 64% from the same period last year.