THE Hong Kong Monetary Authority has defended its decision to
allow four central banks in the region to engage in repurchase
agreements, reiterating that the move does not expose the territory
The authority's chief executive, Joseph Yam Chi-kwong, said
pacts with the central banks of Malaysia, Thailand, Indonesia
and Australia allowed it to provide liquidity on a two-way basis
through repurchase, or repo, agreements.
Under repo agreements, a bank needing cash can sell US dollar
debt securities after promising to buy them back at a set time
Repos are a popular tool in the financial markets because the
securities represent collateral in the event the seller fails
to buy them back at the agreed time and price.
Several members of the Legislative Council's financial services
panel yesterday expressed concern over possible implications
for the Exchange Fund, during a briefing by Norman Chan, the
authority's executive director, monetary management.
Mr Chan said the agreements did not mean the territory was taking
on additional risk in dealing with central banks.
Mr Yam also defended the agreements.
" We're not lending [money]," Mr Yam said. " We're exchanging
cash for assets."
He said there was no question that the fund was taking chances
by engaging in repo transactions.
" What's the risk? There's no risk investing in this," Mr Yam
Transactions would remain secret, safeguarding the authority's
activities in the market, because the counter-party was a central
bank, he said.
There would be no question of Hong Kong entering into such agreements
if it was in need of cash itself.
" I would take care of my own interests first," Mr Yam said,
adding that such agreements generally were short-term, usually
The agreements follow informal meetings in Hong Kong involving
central bankers and monetary authorities from Australia, China,
Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines
Central banks engage in repo agreements with counter-parties
in the market which are not central banks, but are wary of betraying
their liquidity position to financial institutions in the private
" We look at the liquidity of our assets all the time and this
is a good way of obtaining liquidity without telling the market."
Mr Yam said.
He said an agreement with the Philippines' central bank was
imminent and the authority was talking to the People's Bank
of China, the mainland's central bank.
He said the authority probably could engage in repo transactions
with the US Federal Reserve without the formality of signing
a repo agreement.
Meanwhile in Singapore, the Monetary Authority of Singapore
said it would sign a repo agreement with at least one more country
from the Association of Southeast Asian Nations.
On Saturday, Singapore, which did not attend the Hong Kong meeting
of central banks, signed a pact with Indonesia, which did attend
the Hong Kong meeting.
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