Banking and Currency in Hong Kong: A Study of Postwar Financial Development

353 Pages·1974·33.271 MB·English

by  Y. C. Jao (auth.)

BANKING AND CURRENCY IN
HONG KONG
Banking and Currency in
Hong Kong
A Study of Postwar Financial
Development
Y. C. JAO
University of Hong Kong
Palgrave Macmillan
ISBN 978-1-349-02201-4 ISBN 978-1-349-02199-4 (eBook)
DOI 10.1007/978-1-349-02199-4
©Y. C. Jao
Softcover reprint of the hardcover lst edition 1974 978-0-333-15995-8
All rights reserved. No part of this publication may be
reproduced or transmitted. in any form or by any means.
without permission.
First published 1974 by
THE MACMILLAN PRESS LTD.
London and Basingstoke
Associated companies in New York
Dublin, Melbourne, Johannesburg and Madras
SBN 333 15995 0
To the memory of my parents
Contents
Page
PREFACE vii
A NoTE ON CURRENCY viii
LIST OF CHARTS ix
Part One INTRODUCTION 1
Chapter I The Role of Banking Institutions in a 3
Transitional Economy
Hong Kong's Economic Transfonnation 3
An Economy in Transition 6
The Role of Banking Institutions 7
Traditional and Innovational Finance 8
Part Two THE INSTITUTIONAL FRAMEWORK 13
Chapter II Banking Expansion 15
Early Post-war Developments, 1945-54 15
Reasons for Banking Expansion 18
Indicators of Banking Growth 19
Chapter III Banking Structure and Operations 32
Banking Structure 32
Functions and Operations 42
Sources and Uses of Bank Funds 49
Inter-bank Competition 52
Recent Developments and Trends 60
Chapter IV Financial Markets and Intermediaries 72
Financial Markets 73
Money Market 73
Contents
Capital Market 78
(a) Securities Market 78
(b) New Issue Market 86
Exchange Market 88
Other Financial Intermediaries 94
Chapter V Hong Kong and Singapore: A Financial 102
Profile
Currency System 103
Banking Structure and Operations 108
Banking Laws 110
Banking Performance 114
Non-bank Financial Intermediaries 119
Financial Markets 123
Part Three THE BANKING SECTOR AND ECONOMIC
DEVELOPMENT 133
Chapter VI Currency System and Money Supply 135
Alternative Definitions of Money Supply 135
Currency Issue and Currency System 141
Bank Money and Its Components 153
Monetary Velocity 155
Banking System and Money Supply 158
Money Supply and Balance of Payments 160
Chapter VII Liquidity and Credit Creation 168
Commercial Bank as a Firm 169
The Liquidity Constraint 170
Measures of Liquidity 172
Behaviour Pattern of Individual Banks 188
Chapter VIII Allocation of Bank Credit 201
Sectoral Allocation of Bank Loans 205
(a) Manufacturing Industries 205
(b) External Trade 216
(c) Infrastructure 221
(d) Building and Construction 222
(e) Tourism 225
(f) Other Sectors 226
Contents
Banking and Economic Development:
Correlation and Type-cases 229
Chapter IX Financial Strains and Banking Instability
Prelude to Banking Crisis 235
The Tomkins Report and 1964 Banking
Ordinance 242
The 1965 Crisis : Causes and Conse-
quences 244
The 1967 Disturbances and the Bank-
ing Sector 265
Stock Market Gyrations and the Bank-
ing Sector, 1972-3 267
Part Four CONCLUSIONS 271
Chapter X Prospects for Hong Kong Banking 273
Evaluation of Past Performance 273
Prospects and Challenges 275
A Suggested Programme for Stability 280
APPENDIX A: Licensed Banks in Hong Kong 288
APPENDIX B: Bank Representative Offices in Hong Kong 293
APPENDIX C: Proximate Determinants of Money Supply 295
APPENDIX D: A Comparative Summary of Banking
Ordinances 299
APPENDIX E: A Note on Liquidity Cobweb and Banking
Crisis 303
STATISTICAL APPENDIX 307
BIBLIOGRAPHY 313
NOTES AND REFERENCES 325
INDEX 349
Preface
The present book is based on a doctoral thesis presented to the
University of Hong Kong in 1971. The terminal date of that
study is the end of 1968. Since then many significant and excit
ing changes have taken place in the economy of Hong Kong,
especially in its financial sector. To capture these changes, the
text has been thoroughly rewritten, and factual and statistical
information updated as far as possible to the end of 1972 or
early 1973. The chapters and appendixes have also been reor
ganised, several of which being replaced with new ones. There
are, moreover, numerous editorial revisions necessary for a book
that is addressed to the general public rather than exclusively
to the academic community. The result is that the final product
is substantially different from the original thesis.
I am indebted to Professors Ronald Hsia, Gethyn Davies,
E. S. Kirby, J. G. S. Wilson and C. P. J. Tom for their valuable
comments and suggestions for improvement. In writing this
book I have also interviewed or corresponded with many gov
ernment officials and commercial bankers, and I wish to record
my appreciation to Sir John Cowperswaithe, Mr J. C. Paterson,
Mr Michael Sandberg, Mr H. J. Shen, Mr B.S. P. Gent, Mr
K. L. Ng, Dr David Li, Mr Stanley Kwok and many others for
providing me with useful information. Last but not least, Dr
Patrick Yeung of the World Bank has also given me helpful
advice. Needless to say, I alone am responsible for the views
expressed in this book, and for whatever factual or analytical
errors that may remain.
University of Hong Kong Y. C. Jao.
August 1973.
A Note on Currency
Unless otherwise stated, all monetary values in this book are
expressed in terms of the Hong Kong dollar. As at 7 September
1973, £1 =HK$12·5 and US$1 =HK$5·1 approximately.
List of Charts
Page
2.1 Banks and Banking Offices 20
2.2 Banking Density 22
2.3 Growth of Bank Deposits 24
2.4 Growth of Bank Assets 27
2.5 Bank Deposits and Gross Domestic Product Per
Head 28
2.6 Ratio of Bank Assets to Gross Domestic Product
at Market Price 30
3.1 Average Monthly Clearings 45
4.1 Stock Exchange Nominal Turnover 80
4.2 Leading Stock Indexes 83
6.1 Seasonally Adjust Money Stock 140
6.2 Seasonally Adjusted Money Stock Per Head 140
6.3 Seasonally Adjusted Currency in Circulation 150
6.4 Currency Ratio in Hong Kong 152
6.5 Transacttions and Income Velocity of Money 158
7.1 Quarterly Vault Cash and Liquidity Ratio 177
7.2 Quarterly Liquir Assets Multiplier 181
7.3 Quarterly Loan-Deposit Ratio 183
7.4 Asset Structure of the Banking System 187
8.1 Total Plow of Bank Credit 203
8.2 Sectoral Allocation of Bank Loans 208