The Exchange Fund is the guarantee for the Hong Kong Government to issue currency. It was established in accordance with the Currency Regulations promulgated by 1935 (hereinafter referred to as the Exchange Fund Regulations). The initial assets of the Exchange Fund are $65,438+02,365,438+00,000, which comes from the sale of silver deposited by note-issuing banks by the government. Since then, with the increase in the number of banknotes issued, the reserve of banknotes issued by banks in exchange for interest-free debt certificates has been increasing.
According to the provisions of the Exchange Fund Ordinance, the assets of the Exchange Fund can consist of qualified collateral, including issued Hong Kong dollar notes, gold, silver, foreign exchange (mainly pounds sterling at first), or any other collateral approved by the British Secretary of State.
Its main function is to influence the exchange rate by buying and selling pounds with three note-issuing banks at a predetermined exchange rate. Since 1972 Hong Kong dollar was pegged to the US dollar, especially since the Hong Kong dollar floated freely in June 1974+0 1, the Hong Kong government has stepped up its intervention in the market through the exchange fund to maintain the basic stability of the Hong Kong dollar exchange rate.