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.
The mood is to continue cautiously down that path, but to emphasise the need, not only for sound macro-economic policies, which everyone accepts as a sine qua non, but also for steps to accompany capital account liberalisation designed to reduce the risks of volatility. These relate in part to the process of capital account liberalisation, where there is now a good deal more stress on ‘sequencing’ - that is on liberalising potentially more stable, longer-term, capital inflows initially, rather than short-term borrowing denominated in foreign currency. BIS Review 49/1998  -4-  But they relate particularly to three key conditions for living with free capital movements. The first is “transparency”. In a broad sense a need for greater transparency is recognised in relation to public policy, to the relationship between the public and private sectors, to corporate governance, accounting standards, and so on. In a narrower sense there is seen to be a need for more reliable, and greater and more timely disclosure of, financial information generally, at the level of individual borrowing entities, but especially also in relation to countries’ true foreign exchange short-term asset and liability positions. This is especially important in relation to the foreign currency liquidity position of the monetary authorities and of the banking system.