It is worth explaining why the stability of the Hong Kong dollar is so important to our economy, and why it is that we have been able to maintain this stability at a time when the fixed exchange rates of so many other freely convertible currencies in the region have collapsed. We are a predominantly externally-oriented economy, and an economy that comes the closest of any in the world to running itself on pure free market principles. The annual value of our external trade is at least two and a half times that of our gross domestic product: most of it takes the form of re-exports. We import nearly all of our daily needs, including food and water. We export most of our manufactured products, together with a large range of financial and other services. We are an international financial centre with huge capital inflows and outflows, and no exchange controls. In such an economic environment, volatile exchange rates would introduce instability and unpredictability without bringing any corresponding advantages, except possibly to those in the foreign exchange industry. Businessmen would face greater currency risks in their international transactions and would be forced to hedge their considerable currency exposures at great cost. Sharp gyrations in the exchange rate, and the kind of overshooting that we have seen in the recent currency devaluations elsewhere would seriously undermine the stability of our financial system, and confidence in it.
These safeguards will include improvements to cross-market surveillance in Hong Kong, and an in-depth exploration of possibilities for further strengthening the resilience of the currency board system - an exercise which is now making good progress. More widely, we need to continue to develop Hong Kong’s position as a premier international financial centre. Practical measures recently announced by the Chief Executive of the HKSAR will help in this: they include schemes ranging from the upgrading of the security and efficiency of our entire financial infrastructure to the expansion of research facilities in the form of a monetary institute affiliated to the HKMA. The emphasis in all of this is not on intervention, but on facilitation. As a government, we do not direct the form that economic growth should take: we simply strive to provide the best environment that we can to enable growth to take place. In the financial sphere that means a stable currency, a credible and secure banking system, and markets that sustain, rather than undermine, economic development. There is much that we can do - and have done - locally to achieve these aims. But increasingly, the solutions have to be global solutions, because, as the events of the last year have amply demonstrated, some of the most intractable problems facing our financial systems straddle borders and thrive in the cracks and holes between jurisdictions. Globalization - the breaking down of economic barriers - has brought many benefits, particularly to our own region.