06/09/97 'ONE COUNTRY, TWO CURRENCIES' (int'l edition)

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'ONE COUNTRY, TWO CURRENCIES' (int'l edition)

Joseph Yam holds the key to one of the world's richest treasures--Hong Kong's more than $60 billion in foreign exchange reserves. As chief executive of the Hong Kong Monetary Authority (HKMA), he is the leading defender of the Hong Kong dollar's firm tie to the U.S. greenback. In a recent interview with correspondent Mark L. Clifford, Yam, 48, discussed the outlook for Hong Kong's currency and role as an international financial center.
Q: What does ''one country, two systems'' mean for financial policy?
A: The Hong Kong dollar will remain freely convertible. There will be no exchange controls. It means one country, two currencies, and two mutually independent monetary authorities.
Q: What assurances are there from China that the Hong Kong dollar will continue to be pegged to the U.S. dollar at a fixed rate of 7.8 to 1?
A: The linked rate shall remain. It has served Hong Kong extremely well for the past 14 years. China supports that policy. We have a robust monetary system and reserves. We have agreements with 10 central banks in the region to provide liquidity in case of need.
Q: Could you stop a run on the Hong Kong dollar?
A: I hope people who are holding Hong Kong dollars will look at the economic fundamentals. If something were to happen that shakes confidence, no monetary system in the world could uphold whatever policy they are pursuing.
Q: What effect will further integration with China have on Hong Kong's financial system?
A: I hope that Hong Kong's monetary and financial system will play a greater role, not just in the development of China but the region as a whole. That is why we need to ensure that the competitive advantage of Hong Kong as an international financial center is maintained by looking at things like financial infrastructure and information technology.
Q: How will you promote Hong Kong as an international financial center?
A: There is a need to develop liquid markets and a robust financial infrastructure, to enable investors to invest in a manner to minimize the risk involved. Information technology is changing financial markets. We should focus on how we should cope with that. With Internet banking, you don't need to have bank branches in Hong Kong. With smart cards, do you need paper money? This subject is an important one. An HKMA working group has just drafted a report on this.
Q: What's HKMA's role in east Asia?
A: We have been promoting the idea of building an Asian financial network, including a clearing system for debt securities payment to facilitate the movement of money from one currency to another. We are also talking to other central banks in the region about harmonized standards in regulation of markets and supervision of financial institutions.

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