Since this is not the main topic of our discussion today, I will simply give a brief reminder of the facts.   The role of central banks in markets stems from their objectives, the primary one incontestably being to ensure price stability. But this is not their sole objective. As we know, the Fed operates under a “multiple mandate” that is, and I quote, “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates” whereas most other central banks, and in particular the ECB, have a “hierarchical mandate” that places the price stability objective above all other policy goals. More specifically, the Maastricht Treaty states that “without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community”. In that perspective, one of the objectives of the Community that we must support is to “promote solidarity among Member States”.   In order to fulfil its mandate, central banks must be credible and thus independent. If economic agents have the least doubt or the least suspicion that the institution might have an incentive to surprise them by allowing high inflation, they might adjust their behaviour as a precaution and thus “create” higher inflation by increasing their wage claims, thereby triggering a wage-price spiral; or by demanding greater returns on their savings, which pushes up long-term interest rates and weighs on growth.
And we emerged from all this with the most robust banking system in the region. Indeed, the HKAB and HKMA partnership is a very important one, as we continue, in accordance with the requirement laid down in the Basic Law, to develop Hong Kong as an international financial centre. And there are many more challenges ahead for us that require an even stronger partnership to handle. We are all well aware of the forces of globalisation and technological advance, and the opportunities and risks associated with them. The Asian financial turmoil has also put us on clear notice that those forces, made more potent by the activities of the highly leveraged institutions, can be brutal and do not tolerate excesses or mistakes. It takes great effort, particularly in a small and entirely open international financial centre, for both the regulated and the regulator to harness these forces, and derive and maximise the benefits that undoubtedly flow from them. This process is likely to involve changes to both the structure of the banking sector and to the supervisory framework, perhaps to the extent of affecting special interest groups. But the fact of the matter is that changes are inevitable. And in coping with them, we have a choice between either dealing with the relevant issues ahead of time, making full use of our strong partnership, or leaving them to the brute forces of the market.