Monetary Relations Between Hong Kong and China

• Pages: 66-67

Page 66

Following are excerpts of a speech given by Chen Yuan, Deputy Governor of the People's Bank of China, at the Federal Reserve Bank of New York on February 14.

China will resume the exercise of sovereignty over Hong Kong on July 1, 1997. Hong Kong will then become a Special Administrative Region of the People's Republic of China [HKSAR]. According to the Basic Law of HKSAR promulgated by our National People's Congress on April 4, 1990, we are going to implement the policy of "one country, two systems" in Hong Kong. This policy will be realized in various areas, including politics, the economy, and social life. "One country, two systems" means that two entirely different systems will be practiced within one sovereign state. Specifically, this means that after 1997, China will continue to implement its existing socialist system, while Hong Kong's present capitalist system and way of life will remain unchanged for 50 years. Another important indication of the one country, two systems principle is that Hong Kong will enjoy a high degree of autonomy, with Hong Kong people ruling Hong Kong. In effect, this means that the HKSAR will enjoy autonomy in all areas except foreign affairs and defense matters.

Legal and Policy Framework

In monetary and financial areas, the Basic Law sets out clear provisions in the following five areas:

* The government of the HKSAR shall provide an appropriate economic and legal environment for the maintenance of its status as an international financial center.

* The government of the HKSAR shall, on its own, formulate monetary and financial policies, safeguard the free operation of financial business and financial markets, and regulate and supervise them in accordance with law.

* The Hong Kong dollar, as the only legal tender in Hong Kong, shall continue to circulate, and the existing currency issuance mechanism shall continue.

* The Hong Kong dollar shall remain freely convertible, with the free flow of capital and no exchange control.

* The Exchange Fund shall be maintained and controlled by the government of the HKSAR, primarily for regulating the exchange value of the Hong Kong dollar.

These provisions form the foundation for defining the monetary relationship between the Mainland and Hong Kong under the principle of "one country, two systems." This relationship can best be summarized asPage 67 two currencies, two...