of the total ; • more than 700 eu companies use hong kong as regional headquarters or regional offices ; • the eu is the 2nd largest source of visitors and 4th largest source of tourist earnings for hong kong ; • there are over 50 licensed banks and other authorized institutions in hong kong from the eu countries, the largest concentration in asia. clearly, what happens in the eu matters to hong kong. what therefore will be the impact of the euro on the participating countries? there should certainly be a number of economic benefits, including in particular : • a huge increase in transparency from the single currency which will make it easier to compare prices across national frontiers. this will boost competition, bring down costs and prices, and improve efficiency ; • a reduction in transaction costs, in particular from the elimination of foreign exchange commissions. this will encourage trade and cross - border investment flows ; • lower interest rates in individual countries from the elimination from the foreign exchange risk premium. this will reduce financing costs and stimulate investment and output ; • the development of larger and more liquid debt and stock markets across the euro zone. this will create a vast new pool of capital for companies, thus giving a further stimulus to investment ; • tighter fiscal discipline on the member countries under the stability and growth pact and monetary discipline exercised by the new european central bank. both these should ease inflationary expectations and produce a more stable financial environment for the euro zone. in summary, the single currency should be able to deliver higher economic growth and therefore increased demand for imports by the euro countries. as one of the eu ’ s major trading partners, this should benefit hong kong. hong kong may also be able to take advantage of the increased flow of funds for global investment which may be forthcoming from a greatly enlarged european capital market. furthermore, to the extent that an offshore euro market develops, hong kong would be an obvious location for this in asia. this reflects the existing large presence of european banks in hong kong and our role as a bridge between europe and mainland china. finally, hong kong is one of the world ’ s largest holders of foreign exchange reserves and the euro will provide interesting opportunities for diversification of our portfolio. of course, the advent of the single currency also brings with it certain risks. the discipline imposed by the single currency will not always be comfortable, particularly when the business cycles diverge in different member countries. this could set up tensions which could at worst lead to a break - up of monetary union or at least undermine confidence in the euro. the

the currency of a payment obligation should be determined by the law of the country of that currency. this means for example that a payment obligation payable in french francs would become payable in euros after the introduction of the euro because that is the situation that applies under the law of france. however, despite this general principle, concerns have been expressed that parties to contracts might argue that the introduction of the euro represented a fundamental change of circumstances, bringing the contract to an end or requiring its terms to be adjusted. in addition, another feature of the introduction of the euro is that it will replace the ecu at a rate of one for one on 1 january 1999. the ecu is a currency basket but not a currency in its own right. the “ lex monetae ” principle does not apply in this case and therefore the euro will not automatically substitute for the ecu in contracts. it is to remove uncertainty on these points that we have decided to legislate. we believe that this is appropriate for an international financial centre such as hong kong. the financial and legal community in hong kong strongly supports this view. this is just one specific example of how hong kong is affected by the introduction of the euro. there will undoubtedly be more far - reaching effects on our economy and our financial system as the single currency takes root. this is why this seminar is timely and important. i hope that you will find it enjoyable and useful.