. similarly, borrowing hk dollars to fund the deficit would involve a shift in ownership of those dollars around the economy, but no net increase in quantity. the mechanics of financing the deficit ought not therefore raise any concerns in hong kong in the context of monetary stability. nevertheless, in practice the markets do appear to exhibit a degree of negative reaction to the deficit. why? a number of possible explanations come to mind. • first, and rather obviously, there is hong kong ’ s basic law, which indicates that deficits should be avoided. it ’ s understandable for markets to become nervous if they suspect that the law might be infringed. • second, many people, whether in hong kong or elsewhere, anyway have a gut feeling that getting into debt is imprudent. this does not stop them individually from borrowing money, or from being tolerant of their government being in debt, but they may nevertheless be uncomfortable about it. the underlying rationale for holding this view may not be well articulated, but it does not need to be – if the view exists, that is enough for it to have an impact. and the impact may be reinforced if the government ’ s record appears to run counter to what it has itself been preaching. • this leads to the third point, which is that hong kong has boasted since long ago about its budget surpluses and the absence of government debt. this makes it intellectually difficult to deny the significance of the deficit. not that anyone is trying to downplay it – the expressions of concern from government officials have been numerous, sincere and unambiguous. but in some ways this serves to highlight the difference. the present position is seen to represent a sea - change in the financial circumstances of hong kong, whereas other economies more familiar with deficits might be able to take a deterioration in public finances more easily into their stride. • fourth, there is the more specific concern, that either of the two available means for financing the deficit - by, as now, realising foreign currency investments or by government borrowing – would impact adversely on hong kong's financial standing in the eyes of rating agencies and others. of course, it is by no means obvious that these financing activities would necessarily endanger monetary stability or weaken the exchange rate. indeed, there are plenty of examples of economies with low foreign reserves or high government borrowing having enjoyed firm currencies and strong credit standings, and it's hard to see why, for example, the act of the hong

howard lee : opening remarks - project sela report launch conference opening remarks by mr howard lee, deputy chief executive of the hong kong monetary authority, at the project sela report launch conference, tel aviv, 12 september 2023. * * * andrew ( deputy governor of the bank of israel andrew abir ), benedicte ( head of the bank for international settlements ( bis ) innovation hub hong kong centre benedicte nolens ), ladies and gentlemen, good morning. opening firstly, i would like to extend a heartfelt thanks to the bank of israel for hosting this event and for their warm hospitality. we're in the conference center of the tel aviv stock exchange, and i must say, it is a privilege to announce the successful completion of the first joint research project between the hkma and the bank of israel from such an iconic venue in front of a high - profile audience. as you have already heard, the name " sela " was chosen to symbolise the collaborative efforts between the hkma and the bank of israel because, besides indicating an ancient israeli coin, it means " rock " in hebrew, thereby referring to the hkma's legacy in central bank digital currency research, which began in 2017 with project lionrock. for those of you who are not familiar with hong kong, the lionrock is the most recognisable mountain in hong kong. this mountain, as you can probably guess, is shaped like a lion. but it's neither its shape nor its height that made it famous, but the folklore over the past decades that today make it the symbol of the " can - do " spirit of hong kong and of its ability to turn complex challenges into opportunities for growth and development. after several months of enthusiastic collaboration and this visit, i can confidently say that this is the same spirit that i can find in this " start - up nation ". hkma's cbdc research besides having a relevant name, project sela also focused on a highly relevant subject for central banks : central bank digital currencies, or cbdcs. the research into cbdcs is a priority for many central banks worldwide, and for a good reason. the digitalisation of currency has the potential to revolutionise financial systems, redefine transaction processes, and even reshape economies. given these profound implications, at the hkma we have been extensively involved in cbdc research at both the wholesale and the retail level, in order to future - proof our