(Article 112) "The Exchange Fund of the Hong Kong Special Administrative Region shall be managed and controlled by the government of the Region, primarily for regulating the value of the Hong Kong dollar." (Article 113) "The Hong Kong Special Administrative Region shall follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product." (Article 107) These stipulations confirm the continuance of the Hong Kong dollar as an independent currency; they confirm that the Exchange Fund is available to regulate the exchange rate; they rule out the use of exchange controls; and they provide some comfort that deficit fiscal financing should not attain a scale that would pose a serious threat to monetary stability. Choice of regime But within these parameters the exact monetary arrangements are not prescribed. We have chosen to operate a currency board with a fixed rate against the US dollar. I have recently written and spoken at  2  BIS Review 31/2002  2  some length on the rationale behind this choice and do not intend to repeat all of that today. But let me just reiterate one of my principal contentions – namely that monetary policy, which includes exchange rate policy, cannot determine an economy's competitiveness outside the relatively short term.
Tony Latter: Who or what determines monetary policy in Hong Kong? Speech by Mr Tony Latter, Deputy Chief Executive of the Hong Kong Monetary Authority, to the Hong Kong seminar on Financial Services in Asia, organised by Lovells and the Pacific Rim Advisory Council, 13 May 2002. *  *  *  You may think this a rather naive question, to which the answer is obvious, but my experience is otherwise. Who is responsible? Let's start with the "who" question. I have encountered people who variously believe the answer to be the Beijing government; the People's Bank of China; the US Federal Reserve Board; some combination of HSBC, Standard Chartered Bank and the Bank of China (which are the note-issuing banks in Hong Kong); the Hong Kong Legislative Council; the Hong Kong Government; or the Hong Kong Monetary Authority. Article 110 of the Basic Law – often referred to as Hong Kong's constitution – includes the statement that "The Government of Hong Kong shall, on its own, formulate monetary and fiscal policies". This makes it clear that neither the Mainland government nor the PBoC has any powers in relation to our monetary policy, and that the policy responsibility lies firmly with Hong Kong's own government. Since China resumed sovereignty over Hong Kong some five years ago, there has been absolutely no 1 erosion of this principle.