norman t l chan : remarks for trahk 10th anniversary remarks by mr norman t l chan, sbs, jp, chief executive of the hong kong monetary authority, at the trahk 10th anniversary gathering celebration / reception, hong kong, 12 november 2009. * * * good afternoon ladies and gentlemen. i am delighted to be here today on the 10th anniversary of the listing of the tracker fund of hong kong and to see so many familiar faces from the original project team. thank you state street for organizing this timely get - together. a decade has come and gone since we created tracker. we ’ ve seen another crisis and a whole raft of intervention measures by governments, some of which are of unprecedented scale. now the focus is turning to " exit strategies " and, looking back ten years'on, i think we can all take some collective pride in having been part of one of the most innovative, and dare i say elegant, exit strategies. the strategy, of course, was to dispose of the stocks acquired by the government in the stock market operations of the summer of 1998 with minimal disruption to the market. this was by no means a small task – but together we rose to the challenge with an exit strategy that saw us launch the first etf in asia ex - japan, in a public offering which turned out to be the largest in asia ex - japan at the time of launch, raising hk $ 33. 3 billion from over 180, 000 retail investors and institutions. we created the tracker fund in a little under 6 months, from the time the efil board recommended on 21st june 1999 that this was the way to launch the disposal programme. we did this at a time when market sentiment in asia was just beginning to become less negative. if this were not enough of a challenge, we also had the shadow of y2k hanging over us! by some miracle or rather due to the sheer hard work, long hours and perseverance on the part of the project team, we overcame countless operational, it, legal and regulatory challenges thrown at us. just to add to the degree of difficulty, we had to work in the full glare of the public eye, knowing that any miscommunication ( however slight ) could have a severely negative effect not only on our stock market but also on the international perception of hong kong. i have to tell you that making the decision to use an etf as the disposal strategy was not an easy one. the strategy was then unorthod

trends. central banks, too, may have information about the shocks hitting the economy, or about how they will be propagated, or indeed about the way in which policy is likely to respond. provision of information about these issues may help people to reduce their forecast errors and take more informed decisions. as we discussed earlier, complex economic systems may have multiple equilibria. movements between them depend on expectations and beliefs about others ’ beliefs. that is especially so if there are strategic complementarities where the benefits of a strategy depend on the choice of strategies by others. communication might help to coordinate beliefs so that a good rather than bad equilibrium results. suppose that private investors begin to doubt the health of a bank which the central bank knows to be fundamentally solvent. a signal from the central bank that the bank is solvent may help to change beliefs, thus ensuring the continued liquidity and hence solvency of the healthy bank. but it may not be clear that the bank is solvent, and in practice there is often no smoke without fire. communication may help to improve the credibility of public policy. economic policymakers often confront the problem that a future policy setting that is optimal today is not likely to be the policy that it would be optimal to follow tomorrow. before central bank independence, a problem for monetary policy was that a government promise to deliver low inflation was not credible. wage and price setters knew that if contracts were based on the assumption that future inflation would be low, the government would not be able to resist the temptation to generate inflation higher than promised because that would temporarily boost employment and output. so the initial promise was not believed. once expectations of high inflation were embedded into prices and wages, it was at that point rational for the government to tolerate high inflation, because the cost of reducing it would be a deep recession. the idea of giving central banks independent control over monetary policy was to remove this temptation to inflate. 15 communication is a potential solution to the credibility problem. if policymakers are transparent about the objectives of a policy – and the strategy to be followed in pursuit of those objectives – it will be easier to hold them accountable for their actions. this increases the incentives for policy makers to meet their objectives. despite all these benefits, it does not always follow that more communication is beneficial. more communication can be costly and self - defeating. first, private participants face costs in collecting and processing information that could mean important messages are lost. the bank of england could publish all of the