Hong Kong’s forex market can leverage its strengths to become an international centre, Monetary Authority Chief Executive Joseph Yam says.
In his weekly column Viewpoint, Mr Yam said the local forex market has adequate liquidity to cope with large orders, and its supporting infrastructure is arguably the best in the world, particularly in managing settlement or Herstatt risks.
“There should be considerable demand and supply arising from economic or trading activities in our time zone. After all, the bulk of the foreign reserves of the world are held by economies in this region.
“The distribution of global activity – economic, trade, finance and commodity – relative to the location of its originator is definitely shifting to our time zone,” he added.
With the focus of international financial markets increasingly shifting to Asia, Hong Kong’s world-class infrastructure makes it the logical international financial centre for the region, Mr Yam argued.
Hong Kong’s Forex Market
Foreign exchange market Hong Kong or the Hong Kong foreign exchange market is one of the largest in the world. To put the fact in a more specific manner, the foreign exchange market of Hong Kong is the fifth largest in the world. The country is one of the leading financial centers in the world because of the high performance levels achieved by this market.
This is recognized by both the governments of China and Hong Kong and according to the Basic Law, the IFC status achieved by Hong Kong should be maintained by the country.
The following are the reasons for the excellent performance of the foreign exchange market in Hong Kong:
- Brilliant infrastructure
- Political stability
- The financial and trade tie ups with China
- Free business environment
- No Foreign Exchange and capital controls
- Low operation costs
- The country is an international financial center
- The financial professionals in the country are very efficient and well-trained
- The Hong Kong Monetary Authority (HKMA) recognizes the need to keep up the good work done by the foreign exchange market Hong Kong.
The reasons behind the high growth rate experienced by the FX market of Hong Kong are as follows:
- Scope of both regional and international trade
- The fact that the country is an IFC
- Derivative products
- Speculative trading
The FOREX market of Hong Kong broadly works on the principles of the laissez-faire theory, which means that over both the long and short-term period, the market is let to take care of itself. The linked exchange rate system is followed in Hong Kong and this helps in maintaining the stability of the Hong Kong dollar. This stable exchange rate is a key factor in maintaining economic and political stability in the country. This link exchange rate system was introduced in the country in October 1983. The linked exchange rate against the United States dollar is stipulated at a rate of $7.80 to US $1.
The Source: News.gov.hk
Photo credit: Curtis Gregory Perry via Visualhunt.com / CC BY-NC-SA
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