Subsequently, we started an unprecedented – in terms of size and speed – process of interest rate cuts that was one of the largest in the world, bringing the MPR to developedeconomy levels. Between January and July of 2009, we cur 775 basis points off the MPR and also established a mechanism – the term-liquidity-facility, FLAP – to grant funds to the financial system at the same rate as the MPR for a six-month period (figure 7). 2  BIS central bankers’ speeches  Time and again I wonder what else we could have done to cushion the international recession. In hindsight, it is difficult to think that macroeconomic policies could have averted the collapse in demand, considering its size and speed, and particularly because it was triggered by a severe deterioration in economic expectations. The normal lags of monetary and fiscal policies do not allow containing such a major drop in economic activity while it is happening. Nonetheless, expansionary measures were key to attenuate the fall and also boost the expansion that began in the second quarter of 2009 and continues to this day. The recession was severe, but short. The monetary stimulus was vital in getting out of the recession so quickly. Our economy was recovering strongly until it was smashed by an earthquake and tsunami in February 2010, with devastating consequences.
Effective financial infrastructure is as important to Hong Kong as is the extensive and far more visible physical infrastructure that we see around us. And Hong Kong is fortunate to be equipped with a financial infrastructure that is as advanced, reliable and efficient as the road, rail and airport facilities that keep our city moving. Since 1994 the HKMA has implemented a number of major reforms to Hong Kong’s payment and settlement systems. The largest of these reforms was the launch, in December 1996, of Hong Kong’s Real Time Gross Settlement (RTGS) system for interbank payments in Hong Kong dollars. This state-of-the-art system is widely acknowledged to be one of the most advanced and robust of its kind. It has served Hong Kong remarkably well, and made an important contribution to maintaining financial stability during the Asian financial crisis, which erupted not long after its introduction. Our experience with the RTGS system, and in particular the technology produced for it, plays an essential role in the development of the next great milestone, the US dollar clearing system. The US dollar is the currency in which most world trade in merchandise and financial products is denominated. Because of Hong Kong’s role as an international financial centre, and the fact that our own currency is linked to the US dollar, there is extensive holding of US dollars and a considerable trade in US dollar-denominated assets.