International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: February 15, 1961.
Exchange Arrangement
CurrencyThe currency of Hong Kong SAR is the Hong Kong dollar.
Other legal tenderCommemorative gold coins of HK$1,000 are legal tender, but are mostly kept by collectors and seldom circulated.
Exchange rate structure
UnitaryThe authorities do not maintain margins in exchange transactions.
Currency board arrangementThe currency board system in Hong Kong SAR, adopted on October 17, 1983, requires the monetary base to be backed by the reserve currency (i.e., the U.S. dollar) at the fixed exchange rate of HK$7.80 to US$1. In Hong Kong SAR, the monetary base includes the amount of banknotes and coins issued, the balance of clearing accounts of the licensed banks held with the Hong Kong Monetary Authority (HKMA) (i.e., aggregate balance), and the outstanding amount of exchange fund bills and notes. Operating under the rule-based currency board system, the HKMA has undertaken to issue additional exchange fund paper only when there is an inflow of funds, but the size of the program is allowed to expand along with the interest payments on such papers.

The issue and redemption of Certificates of Indebtedness, which provide backing for banknotes issued by the note-issuing banks, are required to be made against U.S. dollars at the fixed exchange rate of HK$7.80 to US$1. Starting from April 1, 1999, the issue and withdrawal of coins are settled against the U.S. dollar at the fixed rate of HK$7.80 per US$1.

An explicit convertibility undertaking was made by the HKMA to licensed banks to convert Hong Kong dollar balances in their clearing accounts into U.S. dollars at the fixed exchange rate of HK$7.75 per US$1. This convertibility rate has been moving to HK$7.80 from HK$7.75 by 1 pip (i.e., HK$0.0001) per calendar day starting from April 1, 1999. It would take 500 calendar days to complete the move to the rate of HK$7.80, where it will remain.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketThe forward exchange markets are operated on private sector initiatives, and the government has no official role.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payment arrangementsNo.
Administration of controlNo.
International security restrictions
In accordance with UN sanctionsUN sanctions are implemented by the Hong Kong SAR government in accordance with the relevant regulations made under the UN Sanctions Ordinance by the Chief Executive on the instructions of the Ministry of Foreign Affairs of the People’s Republic of China.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedNo distinction is made between resident and nonresident accounts.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listImports of certain articles are subject to licensing control by the Director-General of Trade. Import licenses are required for reasons of public health, safety, environmental protection, security, or for the fulfillment of Hong Kong SAR’s international trade obligations.
Licenses with quotasThere is no quota on import quantity covered by a license, whereas the total import quantity of ozone-depleting substances covered by the Montreal Protocol is subject to quotas. The same applies to the import of rice where the quota arrangement is to ensure a stable and sufficient supply of the staple food in Hong Kong SAR. In accordance with Hong Kong SAR’s commitment under the Asia Pacific Economic Cooperation, the rice trade will be fully liberalized by 2010.
Import taxes and/or tariffsAll imports are free of duty, although an excise tax for revenue and health purposes is levied on imported and domestically produced cigarettes and other tobacco products, liquors, methyl alcohol, and hydrocarbon oils.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasExports of certain articles are subject to licensing control by the Director-General of Trade. Export licenses are required for reasons of public health, safety, environmental protection, security, or for the fulfillment of Hong Kong SAR’s international trade obligations.
With quotasExports of certain textile articles to some importing countries are subject to quotas as a result of the quantitative restrictions maintained by these countries on textile exports from Hong Kong SAR. According to the WTO Agreement on Textiles and Clothing, textile quotas would be abolished by 2005.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsThere are no limitations on receipts from invisibles. Income from foreign sources, capital gains, distributions from trusts, and dividends is not taxed in Hong Kong SAR; interest income from domestic sources received by licensed banks and corporations carrying on business in Hong Kong SAR is subject to a profits tax. Interest earned on bank deposits by individuals is not subject to the salaries tax.
Capital Transactions
Controls on capital and money market instrumentsNo exchange control requirements are imposed on capital receipts or payments by residents or nonresidents. A license or an authorization is required for companies, whether incorporated in Hong Kong SAR or elsewhere, to conduct banking, insurance, securities, and natures dealings. Otherwise, all overseas companies are required only to register with the Companies Registry within one month of establishing a business in Hong Kong SAR.
On capital market securitiesAs part of the government’s measures to fortify the financial system against market manipulation, the Stock Exchange of Hong Kong has strictly enforced the T+2 settlement rule, reinstated the tick rule on short selling, and reviewed the list of securities eligible for short selling.
Controls on derivatives and other instrumentsThe Hong Kong Futures Exchange imposes a special margin rate on open interest exceeding 10,000 contracts.
Controls on credit operationsNo.
Controls on direct investmentNo.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsNo.
Controls on personal capital movementsNo.
Provisions specific to commercial banks and other credit institutionsThe limits and restrictions stated below are set by the HKMA for prudential reasons only.
Differential treatment of deposit accounts held by nonresidentsNo distinction is made between resident and nonresident deposit accounts.
Investment regulations
Abroad by banksNo authorized institution incorporated in Hong Kong SAR or its holding company incorporated in Hong Kong SAR may establish or acquire by whatever means without the approval of the HKMA an overseas banking corporation that becomes the subsidiary of the institution or its holding company. In addition, the Banking Ordinance imposes a requirement on a locally incorporated authorized institution to seek HKMA’s prior approval for any acquisition in a company (including establishment) that amounts to 5% or more of the institution’s capital base, except if it acquires the shares in the course of satisfaction of debts due to the institution or under an underwriting or subunderwriting contract for a period not exceeding seven days.
Open foreign exchange position limitsAll authorized institutions are required to report to the HKMA their foreign currency positions (including options) monthly. Locally incorporated institutions are required to report their consolidated foreign currency positions. The aggregate net open position (calculated as the sum of net long/short positions of individual currencies) should normally not exceed 5% of the capital base of the institution, and the net open position in any individual currency should not exceed 10% of the capital base. For subsidiaries of foreign banks where the parent bank consolidates the foreign exchange risk on a global basis and for which there is adequate home supervision, the HKMA may accept higher limits. For branches of foreign banks, the HKMA reviews and monitors their internal limits, which are usually set by their head offices and home supervisory authorities.

In addition to these limits, locally incorporated institutions are required to provide regulatory capital for foreign exchange risk such that their adjusted capital adequacy ratio (incorporating market risk) should be above the respective statutory minimum ratios.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 1999
Exchange arrangementApril 1. The issue and withdrawal of coins is settled against the U.S. dollar at the fixed rate of HK$7.80 per US$1.

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