even more volatile as banks, in the case of capital outflow, scrambled for liquidity which may not be there. in the end, transactions could not be settled, creating chaos in the interbank market which would in turn damage confidence on the banking system as a whole. this is the reality of modern day finance that we all have to accept and monetary authorities have a responsibility to guard against. ( c ) the auto - pilot trigger 42. yet another area of controversy concerns the exchange rate level at which the hkma passively buys or sells us dollars against the hong kong dollar balances in the clearing accounts of the banks in accordance with the discipline of the currency board system, thus triggering the auto - pilot adjustment mechanism. there seems to be three alternatives. first is for the hkma to do so passively always at the fixed exchange rate of hk $ 7. 80 to us $ 1. this is the most transparent alternative. but the effect of this is that all hong kong dollar against us dollar transactions will then be conducted with the hkma, thus on the one hand killing off the foreign exchange market in hong kong and on the other hand generating much greater volatility in interest rates as the liquidity in the banking system changes along with each and every one of such transactions done with the hkma. 43. second is a variation of the first alternative by introducing a spread around the fixed rate of 7. 80 amounting to, say, half a percent or one percent or whatever, by which the hkma would passively buy or sell us dollars against the clearing balance of the banking system. this alternative is also transparent and allows an exchange rate range within which the foreign exchange market would function freely. but it creates identifiable targets for currency attacks which is undesirable. every time the exchange rate trades near the upper or lower limits, perhaps even only for seasonal reasons, there may be speculative position taking against those limits. 44. the third alternative, which is the current practice, is to leave the foreign exchange market alone under normal circumstances but for the hkma to establish its passive presence only when exchange rate instability is detected, for example, when there is a currency attack as in the case of october last year. the hkma would do so at a level of defence, which would of course be close to 7. 80, considered suitable by the hkma in the light of prevailing market conditions. there is therefore an element of “ constructive ambiguity ”. this approach is arguably less

peter pang : the sme sector – an important pillar of many economies statement by mr peter pang, deputy chief executive of the hong kong monetary and head of delegation, at the 44th asian development bank annual meeting, hanoi, 5 may 2011. * * * i would like to thank the government and the people of viet nam for their warm hospitality in hosting this year ’ s annual meeting of the asian development bank. i would also like to take this opportunity to express my deepest condolences to the people of japan affected by the recent tragic events. the global recovery has gained traction, with emerging asia in particular rebounding strongly from the global financial crisis. compared with the last asian financial crisis, the damage to the real economy of the region was much more contained this time. this is in large part attributable to the reforms taken by regional economies over the years to strengthen economic fundamentals and improve the resilience of their banking and financial systems. in addition, a number of regional economies have also promptly taken temporary extraordinary measures to support their economies and cushion the impact on employment. a number of these supportive measures were targeted at assisting the small and medium - sized enterprise ( sme ) sector, which is an important pillar of many economies. smes play a crucial role in the economic growth and job creation of both developing and advanced economies. in hong kong, china, for instance, smes account for 98 % of business establishments and employ nearly half of the total workforce. they provide a broad range of employment opportunities and play an important role in reducing urban poverty. it is no exaggeration to say that when smes thrive, the economy prospers. this is also true vice versa. smes are particularly vulnerable to economic downturns, as banks often reduce their lending to the sme sector due to credit concerns. the exceptional severity of the credit crunch during the global financial crisis has therefore posed great challenges to the smes. in response, the government of hong kong, china swiftly rolled out a temporary hk $ 100 bn special loan guarantee scheme ( slgs ) in december 2008 to alleviate the difficulty of smes in obtaining bank finance and the potential surge in unemployment due to the closing down of smes. together with other short - term government stimulus measures, the slgs has been successful in supporting the smes to sail through this once - in - a - century crisis and limit the potential knock - on impact on the economy. unemployment rate increased by a modest 2. 3