joseph yam : fourth hong kong monetary authority distinguished lecture : opening remarks opening remarks by mr joseph yam, chief executive of the hong kong monetary authority, at the fourth hong kong monetary authority distinguished lecture on the theme of monetary policy and financial stability, hong kong, 13 february 2001. * * * it is an honour for me to welcome mr andrew crockett to deliver this fourth hong kong monetary authority distinguished lecture. i am also delighted to welcome dato ’ dr zeti akhtar aziz as the discussant. both are good friends of the hkma, and it is a special pleasure to see them here today before this large and diverse audience. i extend to all of you, on behalf of the hkma, a very warm welcome. the subject matter of this lecture – monetary policy and financial stability – is at the heart of central banking. much attention has been given to resolving the apparent conflicts between the two desirable objectives of monetary stability and financial stability, at the policy as well as the operation levels. the recent experience of a number of jurisdictions has indicated problems in achieving both simultaneously. some have gone as far as to introduce institutional changes to alleviate the tension, or the embarrassment, or the risk of policy credibility being undermined as a result of such conflicts. while the jury is still out on what institutional arrangements for delivering simultaneously monetary and financial stability are appropriate, there is doubt as to whether institutional changes, politically attractive as they may be, are the right answer. today andrew will give us his insights on the subject. he is particularly qualified to do so, being responsible for the running of the central bank of central banks. some of you may feel that this subject matter is a little arid. i am aware of the fact that those in the private sector have, particularly at this time of the year, more practical and " profitable " issues occupying their minds. but the achievement of monetary and financial stability is central to any successful economy and therefore important to the general conduct of business. it is also a burning issue in this region, where the experiences over the last few years have underlined its importance, and the consequences of failure. knowing andrew, who has an admirable ability to present technically complex issues of money and finance in the simplest of terms, i am sure you will find the subject refreshingly interesting. andrew crockett has been general manager of the bank for international settlements since 1994. to pursue the classroom metaphor that i used at the last lecture to describe how central bankers

financial services what path for this particular sector in the years ahead would be best for hong kong and he would probably answer that continued expansion would of course be best. ask the same question to a neutral economist and he would probably decline to commit himself, saying only that the optimal strategy would be to allow the forces of comparative advantage to play out. whether that favours further development of the financial sector, or of something completely different, who can tell? i am often asked what we on the official side, or more particularly in the hong kong monetary authority, plan to do in order to ensure that our financial sector remains competitive and growthorientated. i find myself torn between replying " nothing at all " and " everything possible ". in fact both would be correct in their own way. " nothing at all " seems appropriate if one is content to allow market forces and the inexorable working of comparative advantage to fashion economic development. it is also consistent with hong kong's style of non - intervention. picking winners is not easy. the offer of sweeteners, first to one sector then another, now to one class of customer then another, may, unless it can be very convincingly justified by thorough cost - benefit analysis, be at best a zero - sum game and at worst a recipe for eventual higher taxation, the burden of which ultimately falls on those least able to shift it away from themselves - typically employees and consumers. " everything possible " seems appropriate in the context of our role in encouraging and catalysing innovation, spearheading collective initiatives in cases where there is insufficient incentive for any single entity to launch them, building infrastructure, and so on. in this latter regard i think that hong kong can take a certain amount of pride in some of the achievements in the financial sphere in recent years. in the interests of time let me mention only some of the developments in systems infrastructure with which we in the hkma have been involved : • first, the establishment of the central moneymarkets unit as an electronic clearing and custodial system for debt instruments ; although this dates back to 1990, the service has been progressively enhanced and extended since then, including, most recently, the building of linkages with similar systems in other centres in order to facilitate cross - border trading in bonds and other debt securities ; • second, the introduction of real - time gross settlement into the hong kong dollar inter - bank payments system in 1996 – we were one of the first economies in the world