It is unusual to have such detailed specifications in a constitutional law, but the transfer of sovereignty is a significant change and it is helpful to retain those effective features that contribute to Hong 1  BIS Review 39/1999  Kong’s success as an international financial centre in the form of constitutional law. These provisions have, of course, provided adequate safeguards for Hong Kong’s monetary autonomy. The reliability, credibility and transparency of our monetary policies are also greatly enhanced. The efficiency of market operations, which may be required from time to time for achieving our monetary policy objectives, has also been improved. As a result, our efforts to maintain monetary stability have become more effective. We should also note, however, that, theoretically, when monetary policies are constitutionalised, the flexibility in addressing problems, especially the unpredictable ones, will be reduced. Nevertheless, during the 20 months or so after the transfer of sovereignty when we have seen extreme conditions of the financial environment, we have not experienced any constraints in our handling of monetary issues. This serves as evidence of the success of the Basic Law in the area of monetary affairs. 5. The higher degree of monetary autonomy that Hong Kong enjoys is also reflected in the changes to Hong Kong’s monetary legislation over the past nine years. To ensure that Hong Kong’s monetary legislation is in full compliance with the Basic Law, we carried out, where necessary, adaptation and localisation of relevant monetary legislation prior to the transfer of sovereignty.

As for Hong Kong, our main task is to maintain the various monetary and financial laws that have been put in place before July 1997. Of course, we need to review and improve the legal framework in the light of the developments in the financial markets. The formulation and amendment of monetary laws are proposed by the executive body of the HKSAR and passed by the legislature. (B) Mainland authorities do not interfere in the monetary affairs of the HKSAR. The monetary authorities of the Mainland and the HKSAR are mutually independent and one is not subordinate to the other. The monetary authority in the Mainland does not set up any office in Hong Kong to exercise monetary management. 12. Under the Exchange Fund Ordinance, the Chief Executive of the HKMA, i.e. the Monetary Authority, is accountable to the Financial Secretary of the HKSAR government. According to the Law of the People’s Bank of China, the PBOC is accountable to the State Council and the branches of the PBOC are accountable to the headquarters. As mentioned earlier, although Hong Kong has been subject to a severe ordeal during the financial turmoil, the PBOC and other Mainland government departments have not interfered in Hong Kong’s monetary affairs. Furthermore, our autonomy in the management of Hong Kong’s foreign reserves is an important element in the mutual independence between the two monetary authorities. 13. While maintaining a mutually independent relationship, the two monetary authorities will continue to maintain and strengthen further the existing sound co-operation between the two places.