Exchange Currency

Hong Kong Monetary Authority

The Hong Kong Monetary Authority (HKMA, Chinese: 香港金融管理局 or 金管局) is Hong Kong's currency board and central banking authority. It is a government authority founded on 1 April 1993 via the consolidation of "Office of the Exchange Fund" and the "Office of the Commissioner of Banking". The organisation reports directly to the Financial Secretary.

The fund was established and managed originally by the "Currency Ordinance" in 1935. It is now named the "Exchange Fund Ordinance". Under the Exchange Fund Ordinance, the HKMA's primary objective is to ensure the stability of the Hong Kong currency, and the banking system. It is also responsible for promoting the efficiency, integrity and development of the financial system.

The HKMA issues banknotes only in the denomination of ten Hong Kong dollars. The role of issuing other banknotes is delegated to the note-issuing banks in the territory, namely the Hong Kong and Shanghai Banking Corporation, Standard Chartered Bank and the Bank of China.

Since 1995, the HKMA has entered into a stability pact with central banks in Malaysia, Thailand, Indonesia and Australia to engage in repurchase agreements, which provide liquidity on a two-way basis.

The HKMA is the government authority in Hong Kong responsible for maintaining monetary and banking stability. Its main functions are:

  • maintaining currency stability within the framework of the Linked Exchange Rate system;
  • promoting the stability and integrity of the financial system, including the banking system;
  • helping to maintain Hong Kong's status as an international financial center, including the maintenance and development of Hong Kong's financial infrastructure;
  • managing the Exchange Fund.

The principal function of the HKMA as banking supervisor is to promote the general stability and effective working of the banking system in Hong Kong. The HKMA seeks to ensure that banks and deposit-taking companies in Hong Kong operate in an effective, responsible, honest and business-like manner to provide a measure of protection to depositors. The HKMA derives its power for these objectives from the Banking Ordinance. The HKMA are more functions:

  • maintains Hong Kong's Linked Exchange Rate system, under which Hong Kong dollar is linked to the US dollar at the rate of HK$7.80 = US$1;
  • supervises one of the world's largest and most diverse banking centres;
  • manages more than US$120 billion in official reserves, in Exchange Fund;
  • supervises and develops one of the most advanced and efficient financial infrastructures in the world.

Under the monetary rule that governs the Currency Board system, any change in the Monetary Base - whether increase or decrease - must be matched by corresponding changes in foreign reserves.

The Monetary Policy Objective is formally specified by the Financial Secretary as the Linked Exchange Rate system in a letter to the Monetary Authority dated 25 June 2003.

The Financial Secretary is responsible for determining the monetary policy objective and the structure of the monetary system of Hong Kong. The Monetary Authority is responsible for achieving the monetary policy objective, including determining the strategy, instrument and operational means for doing so, and for maintaining the stability and integrity of the monetary system of Hong Kong.

The Central Money Markets Unit (CMU), established in the 1990, provide computerized clearing and settlement facilities for Exchange Fund Bills and Notes. It extended the service to other Hong Kong dollar debt securities in late 1993. A seamless interface allow the co-existence of the CMU and the newly launched Real Time Gross Settlement (RTGS) inter-bank payment system. This enables end-of-day "Delivery Versus Payment" services as opposed to Non-DVP.

It is included the Linked Exchange Rate System and noticeable features such as the Aggregate Balance, Certificates of Indebtedness and coins issued and the Outstanding Exchange Fund Bills and Notes.

The Interest Rate Adjustment Mechanism is an automatic system that maintains the stability of the Hong Kong dollar exchange rate. Lately the HKMA has been disclosing the forecast change in the In 1995, Nobel Prize winning economist Milton Friedman mistakenly predicted the Hong Kong dollar's demise within two years of the 1997 handover. He also predicted the absorption of the territory's financial reserves of US$43 billion (HK$335.4 billion) by Beijing, which would not be able to bear the subrogation of Hong Kong's monetary policy to the United States.

As with any monetary system not based on a fiat money (which includes currency boards, currency unions and the traditional Gold Standard) it is impossible to use monetary policy in order to stabilize the business cycle: this means that any macroeconomic adjustment has to be achieved by changes in the prices of assets and labor. In Hong Kong, this is made easier by two factors: the first is the openness of the economy, with an aggregate demand heavily dependent on international trading partners; this reduces the risk of classic liquidity traps. The second factor is the scarce political clout of the trade unions, which makes it easier to trim the nominal salaries during recessionary times.

Moreover, the high saving rates and the moral stigma attached to bankruptcy have kept relatively low the level of defaults on mortgages even during the deep recessions after the Asian crisis after 1998 and the SARS epidemic in 2002/2003.

Banking Stability mainly depends on the "Banking System and Supervision". A "Three-Tier System" was implemented in the 1980s. Institutions are also managed differently depending on whether they are categorised as Licensed Banks, Restricted License Bank or Deposit-taking Institutions. Overseas banks may also establish local representative offices in Hong Kong.

The HKMA's is headquartered in the International Finance Centre. It purchased 14 floors in tower 2. The 55th, 56th and the 77th to 88th floors were bought for US$ 480 million in 2001. An exhibition area, currently containing an exhibit of Hong Kong's monetary history, and a library of the Hong Kong Monetary Authority Information Centre occupy the 55th floor. The 88th floor of the tower contains the office of the Chief Executive of the HK Monetary Authority, and is served by an individual lift.

Joseph Yam had been the Chief Executive since the founding of HKMA in April 1993, until 1 October 2009 when he was succeeded by Norman Chan, for a term of five years. Chan was Director of the Chief Executive's Office.

The HKMA seeks to follow international best practices in its transparency arrangements. The HKMA places great emphasis on promoting a wide understanding of its policies and work. This is done through extensive contacts with the media, a range of regular publications, a comprehensive website, a public enquiries service and an educational programme.

Financial infrastructure consists of the systems and channels through which payments and settlements are made. The HKMA is committed to ensuring that Hong Kong has an efficient, safe and reliable financial infrastructure that meets Hong Kong's present and future needs as an international financial centre. A well-developed financial infrastructure allows financial institutions to:

  • provide efficient payment and settlement services to their customers;
  • make real-time payments in Hong Kong during local hours, in Hong Kong dollars, US dollars, euros and renmin;
  • offer PvP settlement for foreign exchange transactions involving the following currencies: Hong Kong dollars, US dollars, euros and renminbi;
  • support cross-border PvP foreign exchange transactions between two currency pairs: US dollar <-> Malaysian ringgit US dollar <-> Indonesian rupiah
  • trade and hold multi-currency-denominated debt securities.

The HKMA works closely with the Mainland authorities and the financial industry in Hong Kong to promote the development of Hong Kong as the offshore renminbi business centre. With the expansion of offshore renminbi business since 2004, Hong Kong has developed a reliable and highly efficient renminbi financial platform providing one-stop services, including banking and settlement, financing and wealth management, to corporate and financial institutions. Hong Kong now hosts the largest offshore renminbi liquidity pool, and is a global hub for renminbi trade settlement and bond issuance.

Hong Kong is a member of a number of international and regional bodies, including the Asian Development Bank, the Asia-Pacific Economic Co operation forum, the Bank for International Settlements, the Basel Committee on Banking Supervision, the Executives' Meeting of East Asia and Pacific Central Banks, the Financial Stability Board and SEANZA (South East Asia, New Zealand and Australia). It also participates in the activities of ASEAN + 3 (Association of Southeast Asian Nations and China, Japan and South Korea), the Group of Twenty (G20), the International Monetary Fund, SEACEN (South East Asian Central Banks), the World Bank, and other international and regional bodies.

Useful links

Currency of Hong Kong:
Hong Kong dollar
List of Central Banks:
Central Banks
Official website of Hong Kong Monetary Authority:
Government Bond Programe:
Reserves Management in Hong Kong:
Guide to Hong Kong Monetary & Banking Terms:
Money in Hong Kong: