Compliance in Progress Summary
According to the 2003 International Monetary Fund (IMF) Financial Systems Stability Assessment (FSSA) on the Hong Kong Special Administrative Region (SAR) of the People's Republic of China, Hong Kong's adherence to international monetary policy transparency standards is very strong. While the ROSC does not specifically address Hong Kong's compliance level with any of the principles, its findings are supported by the Hong Kong Monetary Authority's (HKMA) 2007 Annual Report, which asserts the Authority's commitment to international standards of transparency and accountability. The roles, responsibilities, and objectives of the HKMA regarding monetary policy are clearly and primarily defined in the Exchange Fund Ordinance, which establishes the Exchange Fund under the control of the Financial Secretary, and the Banking Ordinance, which gives the HKMA regulatory and supervisory powers over banks. Nevertheless, the IMF's 2003 FSSA pointed out a number of areas where Hong Kong could further improve its monetary policy transparency. For instance, it suggested that transparency objectives could be clarified within the governing legislation by specifying the modalities of accountability for monetary policies. Additional enhancement could be achieved by subjecting members of the Exchange Fund Advisory Committee to a Code of Conduct.
General Overview
The 2003 International Monetary Fund (IMF) Financial System Stability Assessment (FSSA) for Hong Kong included a section covering monetary policy transparency practices. The FSSA described Hong Kong's adherence to international monetary policy transparency standards as very strong, even though the assessment does not specifically address Hong Kong's specific compliance level with any of the principles. The FSSA states that the roles, responsibilities, and objectives of the Hong Kong Monetary Authority (HKMA) regarding monetary policy are transparent and are clearly defined in a variety of media and publications, ranging from the HKMA's website to monthly, quarterly, and annual reports. These responsibilities are set out in the Exchange Fund Ordinance, the Banking Ordinance, the Deposit Protection Scheme Ordinance, and the Clearing and Settlement Systems Ordinance. The Exchange Fund Ordinance, which establishes the Exchange Fund under the control of the Financial Secretary, and the Banking Ordinance, which gives the HKMA regulatory and supervisory powers over banks, both lay out HKMA's monetary policy objectives and roles. Nevertheless, the FSSA points out that the HKMA's monetary policy objectives, while implicitly derived from the Exchange Fund Ordinance, are not explicitly specified in any legislation. The ROSC also notes that the HKMA lacks a statute, even if it is considered an individual in law.
The HKMA's 2008 Annual Report asserts the Authority's commitment to transparency and accountability. The 2003 FSSA mentions both the openness of the HKMA's conduct of monetary policy and its belief in transparency as a strategic operating principle. According to the FSSA, the HKMA takes seriously its duty of communicating its policies and work to the general public. The Exchange Fund Ordinance and other governing legislation require that the HKMA promote the public understanding of its monetary policy activities and decisions. Hong Kong subscribes to the IMF Special Data Dissemination Standard (SDDS), and meets the SDDS specifications for the coverage, periodicity, and timeliness of monetary data and for the dissemination of advance release calendars. The Exchange Fund Ordinance and Banking Ordinance lay out the HKMA's powers and responsibilities. The Financial Secretary appoints the individuals who serve on the Monetary Authority and holds it accountable to the people of Hong Kong. Further assurances of accountability are contained in the provisions of the Exchange Fund Ordinance and the Banking Ordinance. The FSSA adds that the HKMA publicly discloses its audited financial statements, and that the auditor's report is annexed to the HKMA's annual report.
Hong Kong's primary monetary policy objective is to maintain its currency at a stable exchange rate between the Hong Kong Dollar (HKD) and the U.S. Dollar (USD) under the Linked Exchange Rate System (LERS) by instituting measures that improve the strength of the monetary management system and by conducting foreign exchange operations in compliance with the discipline of currency board arrangements. The 2007 IMF Article IV Consultations report noted that there has been much speculation about whether or not the appropriate peg should be to the renminbi and not to the U.S. dollar, given the increased integration of the Hong Kong economy into that of the mainland. However, the IMF's 2007 Article IV Consultation concluded that the peg to the U.S. dollar would persist, due to the considerable differences in economic development between China and Hong Kong, the existence of capital controls in China, and the non-convertibility of the renminbi. The 2009 Article IV Consultations report confirms that the HKD/USD linkage remains operational, even in the wake of the global economic downturn.
The Principles
IIClarity of roles, responsibilities and objectives of central banks.
According to the IMF's 2003 FSSA, the roles, responsibilities, and objectives of the Hong Kong Monetary Authority regarding monetary policy are clearly defined and transparent. However, the ROSC does not specifically address Hong Kong's compliance level with this principle. The HKMA was formed in 1993 with the merger of the Office of the Exchange Fund and the Office of the Commissioner of Banking. As a Special Administrative Region of the People's Republic of China, Hong Kong has no central bank, per se. However, the HKMA's 2008 Annual Report notes that the Authority maintains considerable autonomy and assumes many of the responsibilities typically assigned to a central bank, including ensuring the safety and soundness of the banking system and the stability of the currency.
The HKMA discloses its roles, responsibilities, and objectives to the public through a variety of media and publications, ranging from the HKMA's website to monthly, quarterly, and annual reports. These responsibilities are also set out in the Exchange Fund Ordinance, the Banking Ordinance, the Deposit Protection Scheme Ordinance, and the Clearing and Settlement Systems Ordinance. The Exchange Fund Ordinance, which establishes the Exchange Fund under the control of the Financial Secretary, and the Banking Ordinance, which gives the HKMA regulatory and supervisory powers over banks, both specifically lay out the HKMA's monetary policy objectives and roles. Furthermore, the division of functions and responsibilities in monetary and financial policy between the HKMA and the Financial Secretary respectively is presented in a 2003 Exchange of Letters between them that is publicly available and posted on the HKMA website. On that website, the specific policy objectives are listed as follows: "to maintain currency stability within the framework of the Linked Exchange Rate System; to manage the Exchange Fund; to promote the safety and stability of the banking system; and to maintain and develop Hong Kong's financial infrastructure." This is done via measures designed to improve the strength of the monetary management system and by conducting foreign exchange operations in compliance with the discipline of currency board arrangements. However, the FSSA notes that this objective is not explicitly stated in any legislation, but is, rather, implicitly derived from the Exchange Fund Ordinance. The HKMA's annual reports, press releases, and policy statements to the Legislative Council; its website, its technical briefings to reporters, and public seminars all make direct reference to the HKMA's policy objective.
The FSSA also notes that the HKMA lacks a specific governing statute, but is nonetheless considered to be an individual in law and a "corporation sole." According to the FSSA, the Financial Secretary's control of the Exchange Fund is exercised in consultation with the Exchange Fund Advisory Committee (EFAC), and the EFAC essentially acts as HKMA's management board. However, there is no explicit law that establishes that the Financial Secretary "has delegated his powers to HKMA, defining the terms of the delegation and the responsibilities to be fulfilled" (IMF 2003, p. 66). While acknowledging that no legislation sets out any criteria for the appointment or dismissal of the HKMA and EFAC members, the HKMA counters that the authorities responsible for making such appointments are all required by Hong Kong common law to act "reasonably." In its 2004 Article IV Consultation, the IMF reported that the HKMA had improved transparency of its institutional and policy frameworks, noting that it had clarified the responsibilities of the top finance officials, including the Financial Secretary and Secretary for Financial Services and the Treasury, and adding that there was a clear separation of policy formation and execution responsibilities.
IIOpen process for formulating and reporting monetary policy decisions.
The IMF's 2003 FSSA describes the HKMA's conduct of monetary policy as "transparent." However, the FSSA does not specifically address the HKSAR's compliance level with this principle. The HKMA's 2008 Annual Report acknowledges the importance of public confidence in a credible central bank in assuring the efficient functioning of the inflation-targeting regime. Therefore, the HKMA considers transparency to be a strategic operating principle and takes seriously its duty to communicate its policies and work to the general public.
Through the ordinances that set out the central bank's responsibilities (i.e. the Exchange Fund Ordinance), the HKMA is required to promote a better understanding of its monetary policy activities and decisions. The HKMA website discloses that daily information on the operations of HKMA through its overnight facility is posted on the website in both English and Cantonese. Reporting on the achievement of monetary stability goals is mainly conducted through public briefings by the Chief Executive of the HKMA to the Legislative Council (three times a year) and through HKMA publications, such as press releases, speeches, and presentations, all of which are posted on the HKMA website. To promote its monetary policy work, the HKMA also organizes regular off-site public education tours and maintains an information center at its headquarters that is open daily to the public.
IIPublic availability of information on monetary policy.
According to the 2003 IMF FSSA, the HKMA ensures the public availability of information on monetary policy. However, the FSSA does not specifically address the HKSAR's compliance level with this principle. The ROSC notes that Hong Kong subscribes to the IMF SDDS and meets the SDDS specifications for the coverage, periodicity, and timeliness of monetary data and for the dissemination of advance release calendars. The SDDS and HKMA websites both show that the HKMA provides timely and sufficient coverage of daily, weekly, monthly, quarterly, and annual data, and other technical publications related to the monetary sector (i.e. guidelines and circulars), and all are available online. The financial statements of the Exchange Fund are disclosed on a timely and pre-announced schedule, and HKMA's market transactions are disclosed on a real-time basis.
IIAccountability and assurances of integrity by the central bank.
The 2003 IMF FSSA states that the HKMA conducts monetary policy in a transparent way, but the report does not specifically address Hong Kong's compliance level with this principle. Nevertheless, according to the HKMA's 2008 Annual Report, the Monetary Authority is accountable to the people of Hong Kong through the Financial Secretary, who appoints the HKMA, and through the laws passed by the Legislative Council (i.e. the Exchange Fund Ordinance and the Banking Ordinance) that set out the HKMA's powers and responsibilities. According to the FSSA, the HKMA publicly discloses audited financial statements of the Exchange Fund, and the auditor's report is annexed to the HKMA's annual report. The HKMA acts as a manager of the Exchange Fund, but it does not have any assets or liabilities of its own. Also, the Government Auditor, who reports directly to Hong Kong's Chief Executive, conducts external audits of the Exchange Fund accounts. The HKMA's internal audit division, which reports to the HKMA management and to the Exchange Fund Advisory Committee Audit subcommittee, is primarily responsible for ensuring operations integrity. Finally, the HKMA staff is subject to a code of conduct, even though members of the Exchange Fund Advisory Committee are not.
