Monday, November 30, 2015   

Chan defends 'special action' to prevent currency chaos

Michael Wong and Teresa Lee

Sunday, August 16, 1998

Chan defends `special action'

to prevent currency chaos

CHIEF Secretary of Administration Anson Chan Fang On-sang backed

Financial Secretary Sir Donald Tsang Yam-kuen's use of the Exchange

Fund to defend stock and futures markets and the Hong Kong dollar

against speculators.

But Democratic Party leader Martin Lee Chu-ming warned that the

unprecedented foray into the stock and futures market meant that Hong

Kong was no longer a free-market economy.

Academics also warned about the long-term repercussions.

Mrs Chan denied criticisms that the government was interfering with


the free market operation.

"We definitely are not interfering with anyone who wishes to sell out

the index, but we cannot allow someone to create chaos in our foreign

currency market, which will cause losses to our businesses," she said

yesterday on her return from an official visit to Singapore.

"It was a special action aimed at those attacking the Hong Kong

dollar and the interest rate."

The government was sending a strong signal to certain investors and

had no intention to deviate from its non-intervention policy, she


Mrs Chan also met senior government officials, including Singapore's

Senior Minister Lee Kuan Yew, and business leaders.

Democrat Mr Lee, however, warned that the move had damaged Hong Kong's

reputation as a financial centre.

"The invisible hand of Adam Smith has been replaced by the invincible

hand of Tung Chee-hwa, but how long can he remain invincible?

"It is highly dangerous. I think this is a huge cost to our

reputation as one of the world's financial centres, because now

instead of the government being a regulator, you find that the

government is now a player, a very key player."

Academics in a forum said the use of the Exchange Fund to prop up the

market could not ward off attacks in the long term.

"The method of attack is to short the Heng Sang Index but if the

index is already very low, it would be much harder for them to push it

down further," said Francis Lui Ting-ming, association professor at

the University of Science and Technology.

"Some speculators may even welcome the opportunity when the

government pushes up the index _ they will have a better chance to

make a profit by selling short," he added.

But Prof Lui and Leung Wai-kin, associate professor at the University

of Hong Kong, both believed the government's apparent abandonment of

the high interest rate policy "is an improvement". There was also

consensus at the forum that speculators would resume their attack.

But Executive Councillor Leung Chun-ying said: "The measure is to

give speculators a strong message _ that the government will not stand

aside or turn a blind eye to it."

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