雙城記

受一間國際金融機構所邀，到新加坡就香港應否建設中央銀行作演講。與會者皆是東南亞各國央行、甚至歐盟代表、銀行業人士和投資顧問等，好不熱鬧。香港最近落後於新加坡和上海，跌出國際五大最理想金融中心，實在再不可以存有自我良好感覺而呆滯不前。正如温總理所言，金融業務發展，不進則退。只怕好大喜功的曾特首聽不入耳。
每次到新加坡，也覺得這地方市容很好、很吸引人。但可惜新加坡如香港一樣，只著重經濟發展，而漠視政治訴求。不過在管治質素上，特區卻似乎更每況愈下，實在令人痛心。在接受《聯合早報》訪問時，記者問及我似乎對特區之政制及金融發展均非常悲觀，如何面對前路的各種挑戰？我只好硬着頭皮說，只要永不言敗，黎明始終要到來！但願如是……

以下是我在新加坡的發言稿：
Does Hong Kong Need A Central Bank?

Introduction
The banking industry is at the heart of the financial structure in Hong Kong and is the linchpin of the very foundation of Hong Kong as an international financial centre. As at the end of February 2008, there were 200 authorized banking institutions operating in Hong Kong: 142 licensed banks, 29 restricted license banks, and 29 deposit-taking companies; of these, 66 percent were owned by foreign investors. A total of 68 of the largest 100 banks in the world, from 38 countries, have an operation in Hong Kong. In addition, there are 80 local representative offices of overseas banks in Hong Kong.

This compares with 113 commercial banks including six local banks and 107 foreign banks in Singapore. But there is a major difference: Singapore has a full-fledged central bank in the form of Monetary Authority of Singapore (“MAS”) whereas Hong Kong has a seemingly rather passive or de facto central bank in the name of Hong Kong Monetary Authority (“HKMA”). The question is, does Hong Kong owe its success to the lack of a full-fledged central bank or can it achieve more with a central bank?

It is generally recognized that the major functions of a central bank are:
 Acting as government’s bank including issuer of bank notes and acting as a bankers’ bank;
 Formulating and implementing monetary policies including setting of interest rates;
 Managing foreign reserves;
 Regulating the banking industry;

In the case of Hong Kong, the HKMA is entrusted with managing Hong Kong’s foreign reserves and regulation of the banking industries by reason of the Exchange Fund Ordinance and the Banking Ordinance respectively. However, its involvement with the other functions of a central bank is limited.

No Government Bank
First, the HKMA does not act as a government bank. Government revenue is spread amongst a number of banks but essentially the government is banking with the Hongkong and Shanghai Bank (“HSBC”), Standard Chartered Bank (“SCB”) and the Bank of China (“BOC”), but not necessarily in that order.

Secondly, it is not a note issuer. The note issuing function is performed by the government and delegated to the 3 banks mentioned above under Article 111 of the Basic Law. Unlike some other countries, the issue of currency in Hong Kong is prescribed by the Basic Law and has to be “backed by a 100 percent reserve fund” and has to be “soundly based” and “consistent with the object of maintaining the stability of the currency”. The option of influencing the local economy by this route is thus relatively limited.

The fact HKMA is not a government bank can generally be seen as a weak link: some may see the government’s finances as being dependent on the stability of other banks. In this day and age of global financial turbulence, some may think this is less than reassuring. The Hong Kong government’s response is that:
 Hong Kong has maintained at all times a high level of reserves;
 Banks are required to maintain a higher than normal equity ratio; and
 Hong Kong has a healthy banking structure.
There is thus a reliable systemic safeguard. But:
 Maintaining a high level of reserves may not be a very efficient way of managing the city’s finances;
 The requirement of high equity ratio is not particularly inviting to all banks and some say may even be harmful to healthy competition; and
 A healthy banking structure is no guarantee against systemic failures in this day and age of globalization. The salutary warning of the Lehman Brothers debacles needs to be well heeded.

Lender of Last Resort
The HKMA has always insisted that while it is not strictly a bankers’ bank, it is a lender of last resort. In a speech made to the Hong Kong Association of Banks (“HKBA”) in June 1999, Mr. Joseph Yam, the then Chief Executive of the HKMA further clarified the role of HKMA as a lender of last resort:
 It is only a lender of last resort to local banks and not to branches of foreign banks;
 The institution seeking help must have a sufficient margin of solvency and have exhausted other avenues of funding;
 There must be adequate collateral;
 Management must be “fit and proper” and there must not be any suspicion of fraud;
 The institution must be prepared to take remedial action “to deal with its liquidity problems”.

While many regard some of these “conditions” are reasonable conditions, others think some of the requirements are self contradictory and thus militates against HKMA being a true lender of last resort.

The recent financial tsunami has also exposed another deficiency in the system: when the small and medium enterprises were crying out for help in face of credit contraction, the government was powerless in persuading banks to speed up recovery of the economy even with very substantial government guarantees. A central bank would have stepped in and led the recovery.

Formulation and Implementation of Monetary Policies

Interest Rates
HKMA has no power to set interest rates. Since 1964, interest rates on bank deposits in Hong Kong have been regulated by a set of interest rate rules (“IRRs”) issued by the HKBA, which describes itself as mainly a channel of communication between the government and banks. In July 2001, the IRRs were abolished entirely. By and large, prime lending rate is now set by the market leaders, namely HSBC and SCB. In any event, many will argue even with a central bank, with the link of Hong Kong currency to the US dollars, Hong Kong is unlikely to be able to use the setting of interest rates as a tool of “managing” the economy like some other countries.

Supply and Maintenance of Credit
Insofar as Hong Kong’s monetary policies involve management of foreign reserves and regulation of the banking industry, HKMA is performing these functions as defined by law. But it is not an official sovereign investment bank. Even as a public investor of foreign reserves, it lacks clear legal guidelines and its workings not at all transparent. Its function as a bank regulator also creates possible conflicts with its role as an investor in the local market. There is plainly a case for the setting up of a sovereign investment bank. In this respect, Hong Kong is lacking behind Singapore and the rest of China.
Apart from the functions mentioned above, HKMA has no other power of supply or maintenance of credit. With no power to supply or maintain credit and no power to set interest rates, the HKMA is unable to directly manage the economy in ways other countries can.

Is Change Possible?

If there is a case for setting up a central and sovereign investment bank in Hong Kong, is change possible politically and constitutionally? Will China accept there being two central banks within one country?
The Basic Law recognizes and preserves Hong Kong’s distinct economic system:
 Article 106 provides Hong Kong shall have “independent finances”;
 Article 109 stipulates Hong Kong shall “provide an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial centre”;
 Article 110 further confirms the Hong Kong government shall, “on its own, formulate monetary and financial policies”.
There are thus no constitutional obstacles to the setting up of a central and investment bank. Nor can one readily see any political opposition. Since the Handover, the BOC has been working very closely, and more importantly, has been very supportive of the HKMA. There is no reason why this closely knit relationship should change if Hong Kong were to embark upon a route towards setting up a central bank.

Looking Ahead

The ever increasing globalization of world economy demands the presence of a strong and independent central bank in every world class financial centre in the world. Hong Kong is no exception if it aspires to a stronger presence in the financial world. Let us see if Hong Kong will answer the call in the decade to come.