Further, the HKMA discourages the repeated use of the overnight facility by charging repeated borrowers, which is clearly defined, very penal interest rates23. 41. Were the HKMA to suspend the operation of the LAF, interbank interest rates would be even more volatile as banks, in the case of capital outflow, scrambled for liquidity which may not be there. In the end, transactions could not be settled, creating chaos in the interbank market which would in turn damage confidence on the banking system as a whole. This is the reality of modern day finance that we all have to accept and monetary authorities have a responsibility to guard against. (c) The auto-pilot trigger 42. Yet another area of controversy concerns the exchange rate level at which the HKMA passively buys or sells US dollars against the Hong Kong dollar balances in the clearing accounts of the banks in accordance with the discipline of the currency board system, thus triggering the auto-pilot adjustment mechanism. There seems to be three alternatives. First is for the HKMA to do so passively always at the fixed exchange rate of $ to $ This is the most transparent alternative.
12 The General Bank Clearance Centre was established by the PBoC in December 1997 to help prevent financial risks and  maintain a stable payment order. The PBoC has also abolished credit quotas for working capital loans for all state-owned commercial banks since January 1998. Besides, in a banking conference held at that time, PBoC Governor Dai Xianglong highlighted four major banking reform directions, namely reorganizing the PBoC’s branch network, streamlining commercial bank operations, converting co-op banks into commercial banks and cleaning up non-performing loans. 13 Based on Goldman Sachs and World Bank’s studies, the estimated total worker compensation (i.e. wages plus social  security benefits) per week in the manufacturing sector in 1998 is $ for China, $ for Indonesia, $ for Malaysia, $ for the Philippines, $ for Thailand, $ for Korea and $ for Taiwan. BIS Review 19/1998  -5likely to be offset by higher inflation, higher costs of imports and higher interest rates. China has also established market leadership in a variety of products in world markets. It is difficult to see this dominant position being significantly eroded, particularly with the existence of international trade barriers which limit the extent of the possible shift of export orders from China to other Asian economies. 16. Fifth, the economic fundamentals of the Mainland of China are strong. Economic growth in 1998, forecasted to be 8% in real terms, is only a shade below the growth rate of 8.8% achieved in 1997. Furthermore, inflation is expected to be below 3%.