hong kong may have introduced a degree of bias in my views on the subject, which i have tried consciously to avoid. 15. but i would urge you instead to look at the reports of our annual medical check - ups conducted by the imf since 1990 in the form of what are known as the article iv consultations. the imf team was in fact in hong kong for this year ’ s consultation in the second half of october, when the short - lived but somewhat intense attack on our currency occurred. it was the best time for any diagnosis of financial problems. but after observing us closely over the period the team again gave us a clean bill of health. let me give you a few relevant quotes from the concluding statement of the consultation, which has already been published. it said that : “ the authorities ’ commitment to a rules - based and non - interventionist approach should enhance the economy ’ s ability to withstand the recent regional and financial market turmoil. ” “ as in the past, the mission strongly endorses the authorities ’ continued commitment to the linked exchange rate system. ” “ appropriately, the authorities have taken forceful action during the past two weeks to tighten significantly monetary conditions, and have successfully demonstrated their ability and commitment to defend the link. ” “ it is important to recognize that allowing interest rates to rise in response to exchange market pressures is an essential element of the currency board mechanism that lies at the heart of hong kong ’ s monetary arrangements. ” “ recent events demonstrate that the system is working exactly as intended... ” “ our discussions with market participants have indicated a widely - held consensus that the prudential and regulatory oversight of the financial sector is strong, which has helped underpin confidence in the system. ” 16. but what the internationally renowned doctor, in the form of the imf, says may not always be universally acceptable, particularly for those who may have been innocent parties having to suffer the pain of market adjustment, inevitable as it may be. it is quite understandable therefore that there will always be grievances and consequently calls for prescriptions for pain killers and other preventive medicine. i welcome constructive suggestions very much and we are in the process of meeting with those who are so kind as to offer their views and go through the vigorous technical discussions that good ideas deserve. 17. so far i am glad that there is full support for our linked exchange rate system. no one liked the prospect of hong kong being swept along in the process of competitive deval

think that there are a number of good reasons to believe that it will be. in the first place, we now have institutional arrangements in hong kong to put the financial sector provisions of the basic law into practice. in particular, the hong kong monetary authority, which i represent, has the legal powers, monetary instruments and financial resources - including us $ 63 billion of foreign currency reserves - to fulfill its role as the central bank of hong kong and to maintain the value of the hk dollar. during the four years of its existence, the hkma has built up a good working relationship with the people ’ s bank of china which has made it clear in public that it will not take over the role of the monetary authority in hong kong after 1997. the separate role for hong kong after 1997 is underscored by its separate membership alongside china of international organizations such as the bank for international settlements and the asian development bank, and its participation in the imf ’ s new arrangements to borrow. of course, what matters is not what i say but what the market actually thinks. judged by this criterion, there is genuine confidence about the future. this is shown by the consistent stability of the hk dollar ; the strength of the stock market, though it has its ups and downs in line with expectations about us interest rates ; the growth in hk dollar deposits of about 20 % over the last year ; and the decline in the margin of our 10 - year exchange fund notes over us treasuries to around 50bp compared with 90bp at the end of 1996. so far as foreign banks operating in hong kong are concerned, hong kong political risk largely seems to have disappeared as an issue. we have seen no exodus of banks from hong kong ; rather, we have seen an increased appetite among the foreign banks to take on long - term hk dollar assets, including residential mortgage loans and syndicated credits. although the margin on these have come down significantly over the last year, they are still attractive compared with the margins available to foreign banks in their home countries. the importance of international regulatory standards we do not anticipate any radical changes in hong kong ’ s system of banking supervision after 1997, nor in its attitude to the entry of foreign banks. no doubt, however, these will evolve in line with trends in global regulation. this reflects the guiding principle of our supervision in hong kong which is to follow international standards. there are a number of practical reasons for wanting to do so. first, it is in keeping