Hong Kong Introduces Measures
To Curb Currency Speculation
Dow Jones Newswires
HONG KONG -- The Hong Kong Monetary Authority introduced
technical measures Saturday to protect its financial markets from currency
speculation, ending a week that began with the local stock and futures
exchanges fencing in speculators.
The measures, which HKMA Chief Executive Joseph Yam described as a
means of "purifying" Hong Kong's 15-year-old modified currency board,
are intended to ease interest rate volatility and raise costs for speculators
trying to break the peg.
The measures come in the wake of some of
the worst market speculation in Hong Kong's
recent history. In August, hedge funds sold the
currency and stock futures short to make
money and perhaps strain the peg. The
speculation caused the Hong Kong stock
market to plummet.
Saying speculators were manipulating markets
and maybe even causing them to overshoot,
the government made its first interventions into
the stock and futures market, spending as
much as US$15 billion, according to some
analysts, to shore up falling share prices and
squeeze speculators out of the futures
markets.
In the wake of speculation, the Stock Exchange of Hong Kong, the Hong
Kong Futures Exchange and the Hong Kong Securities Clearing Co. this
week rolled out preventive measures, such as short-selling restrictions,
higher margin requirements and a reminder that all securities transactions
would need to be settled two days after execution.
It was the HKMA's turn Saturday, with Mr. Yam guaranteeing all licensed
banks the quasi-central bank would convert U.S. dollars in their clearing
accounts at a rate of HK$7.75 per dollar from the open of business
Monday.
That liquidity guarantee should remove an uncertainty banks have about
finding Hong Kong dollar funding, which has made them reluctant to lend
to each other, except at very high rates. In setting the conversion rate at
HK$7.75, the HKMA acknowledged for the first time that it considers
that level its "intervention rate," something market participants have long
believed.
Other changes to the discount window involve repurchase agreements,
which will require speculators to ante up more money than they did before
if they want to strain the peg.
From Monday, the HKMA will remove the punitive rates and "repeated
borrower" designation. It will allow unlimited usage of the discount
window, but at the same time, it will restrict repurchase agreements to
holders of its Exchange Fund bills and notes or paper issued by the
government-backed Hong Kong Mortgage Corp., the Mass Transit
Railway Corp. and the Airport Authority.
Mr. Yam acknowledged the restriction of discount window eligibility to
Exchange Fund paper would somewhat stunt the development of the Hong
Kong dollar bond market, as well the requirement that paper issuance be
fully backed by reserves.
Hong Kong's reserves were at HK$96.5 billion at the end of July, but they
are expected to be sharply lower after the government bought blue-chip
stocks and stock futures heavily in August. |
