126-724: The Hong Kong Monetary Authority ( HKMA ) is the central banking institution of Hong Kong . It is a government authority founded on 1 April 1993 when the Office of the Exchange Fund and the Office of the Commissioner of Banking merged. The organisation reports directly to the Financial Secretary . The exchange fund was established and managed originally by the Currency Ordinance in 1935, now named
252-529: A ripple effect through the financial system and the economy (as well as any connected economies) as a whole. The foreign ministers of the 10 ASEAN countries believed that the well co-ordinated manipulation of their currencies was a deliberate attempt to destabilize the ASEAN economies . Malaysian Prime Minister Mahathir Mohamad accused George Soros and other currency traders of ruining Malaysia's economy with currency speculation . Soros claims to have been
378-489: A $ 40 billion program to stabilize the currencies of South Korea, Thailand, and Indonesia, economies particularly hard hit by the crisis. However, the efforts to stem a global economic crisis did little to stabilize the domestic situation in Indonesia. After 30 years in power, Indonesian President Suharto was forced to step down on 21 May 1998 in the wake of widespread rioting that followed sharp price increases caused by
504-592: A bigger crisis and saved the market". Most stocks acquired during that operation were successively disposed with the creation of a tracker fund, the TraHK . This reduced the portfolio of Hong Kong equities to 5.3% of the reserves in 2003. However, the percentage crept back and had risen above 10% by 2006. In August 1998, as part of its wider remit to protect the currency, the HKMA lent the Thai government US$ 1 billion from
630-485: A buyer of the ringgit during its fall, having sold it short in 1997. At the 30th ASEAN Ministerial Meeting held in Subang Jaya , Malaysia , the foreign ministers issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard. Coincidentally, on that same day, the central bankers of most of
756-495: A central bank may include: Central banks implement a country's chosen monetary policy . At the most basic level, monetary policy involves establishing what form of currency the country may have, whether a fiat currency , gold-backed currency (disallowed for countries in the International Monetary Fund ), currency board or a currency union . When a country has its own national currency, this involves
882-560: A central banking role to banks that were effectively or even legally foreign. A seminal case was the Imperial Ottoman Bank established in 1863 as a French-British joint venture, and a particularly egregious one was the Paris-based National Bank of Haiti (est. 1881) which captured significant financial resources from the economically struggling albeit independent nation of Haiti . Other cases include
1008-900: A common central bank. Examples include the Eastern Caribbean Currency Authority , the Central Bank of West African States , and the Bank of Central African States . The concept of supranational central banking took a globally significant dimension with the Economic and Monetary Union of the European Union and the establishment of the European Central Bank (ECB) in 1998. In 2014, the ECB took an additional role of banking supervision as part of
1134-573: A currency union, or indirectly on a currency board. In the latter case, exemplified by the Bulgarian National Bank , Hong Kong and Latvia (until 2014), the local currency is backed at a fixed rate by the central bank's holdings of a foreign currency. Similar to commercial banks, central banks hold assets (government bonds, foreign exchange, gold, and other financial assets) and incur liabilities (currency outstanding). Central banks create money by issuing banknotes and loaning them to
1260-578: A drastic devaluation of the rupiah . The effects of the crisis lingered through 1998, where many important stocks fell in Wall Street as a result of a dip in the values of the currencies of Russia and Latin American countries that weakened those countries' "demand for U.S. exports." In 1998, growth in the Philippines dropped to virtually zero. Only Singapore proved relatively insulated from
1386-579: A further decline in South Korean shares since stock markets were already bearish in November. The Seoul stock exchange fell by 4% on 7 November 1997. On 8 November, it plunged by 7%, its biggest one-day drop to that date. And on 24 November, stocks fell a further 7.2% on fears that the IMF would demand tough reforms. In 1998, Hyundai Motor Company took over Kia Motors. Samsung Motors ' $ 5 billion venture
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#17327717946071512-508: A greater devaluation? This is a relevant tradeoff, but there can be no question that the degree of devaluation in the Asian countries is excessive, both from the viewpoint of the individual countries, and from the viewpoint of the international system. Looking first to the individual country, companies with substantial foreign currency debts, as so many companies in these countries have, stood to suffer far more from… currency (depreciation) than from
1638-425: A high rate of return . As a result, the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore and South Korea experienced high growth rates, of 8–12% GDP, in the late 1980s and early 1990s. This achievement was widely acclaimed by financial institutions including IMF and World Bank , and
1764-511: A highly leveraged economic climate, and pushed up asset prices to an unsustainable level, particularly those in non-productive sectors of the economy such as real-estate. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations. The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. In addition, as foreign investors attempted to withdraw their money,
1890-407: A large number of Indonesian corporations had been borrowing in U.S. dollars. This practice had worked well for these corporations during the preceding years, as the rupiah had strengthened respective to the dollar; their effective levels of debt and financing costs had decreased as the local currency's value rose. In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened
2016-462: A largely uncontrolled manner to certain people only – not necessarily the best suited or most efficient, but those closest to the centers of power. Weak corporate governance also led to inefficient investment and declining profitability. Until 1999, Asia attracted almost half of the total capital inflow into developing countries . The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for
2142-583: A library of the Hong Kong Monetary Authority Information Centre, occupy the 55th floor. The 88th floor of the tower contains the office of the chief executive of the HKMA, and is served by an individual lift. The Chief Executive is appointed for a five-year term by the Financial Secretary , and is continuously renewable with no term limit. The chief executive is supported by a number of deputy chief executives, shown below in order of appointment. The HKMA hosted
2268-567: A precipitous rise in private debt . Foreign debt-to-GDP ratios rose from 100% to 167% in the four large Association of Southeast Asian Nations (ASEAN) economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea, the ratios rose from 13% to 21% and then as high as 40%, while the other northern newly industrialized countries fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise. South Korea , Indonesia and Thailand were
2394-506: A ratio between the gold reserves held by the Bank of England and the notes that the bank could issue. The Act also placed strict curbs on the issuance of notes by the country banks. The Bank of England took over a role of lender of last resort in the 1870s after criticism of its lacklustre response to the failure of Overend, Gurney and Company . The journalist Walter Bagehot wrote on the subject in Lombard Street: A Description of
2520-629: A response to a currency crisis in 1797, Thornton wrote in 1802 An Enquiry into the Nature and Effects of the Paper Credit of Great Britain , in which he argued that the increase in paper credit did not cause the crisis. The book also gives a detailed account of the British monetary system as well as a detailed examination of the ways in which the Bank of England should act to counteract fluctuations in
2646-473: A result of the crisis. Following the 1997 Asian financial crisis, income in the northeast, the poorest part of the country, rose by 46 percent from 1998 to 2006. Nationwide poverty fell from 21.3 to 11.3 percent. Thailand's Gini coefficient , a measure of income inequality , fell from .525 in 2000 to .499 in 2004 (it had risen from 1996 to 2000) versus 1997 Asian financial crisis. By 2001, Thailand's economy had recovered. The increasing tax revenues allowed
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#17327717946072772-556: A result of the crisis. In May 1997, the Bangko Sentral ng Pilipinas , the country's central bank, raised interest rates by 1.75 percentage points and again by 2 points on 19 June. Thailand triggered the crisis on 2 July and on 3 July, the Bangko Sentral intervened to defend the peso , raising the overnight rate from 15% to 32% at the onset of the Asian crisis in mid-July 1997. The peso dropped from 26 pesos per dollar at
2898-483: A series of bailouts ("rescue packages") for the most-affected economies to enable them to avoid default , tying the packages to currency, banking and financial system reforms. Due to IMF's involvement in the financial crisis, the term IMF Crisis became a way to refer to the Asian Financial Crisis in countries that were affected. The IMF's support was conditional on a series of economic reforms,
3024-494: A temporary rise in domestic interest rates…. Thus, on macroeconomics… monetary policy has to be kept tight to restore confidence in the currency.... From the then IMF managing director Michel Camdessus : To reverse (currency depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations. From 1985 to 1996, Thailand's economy grew at an average of over 9% per year,
3150-558: A two-way basis. The Central Moneymarkets Unit (CMU), established in the 1990, provides computerised clearing and settlement facilities for Exchange Fund Bills and Notes. It extended the service to other Hong Kong dollar debt securities in late 1993. A seamless interface allow the co-existence of the CMU and the newly launched real-time gross settlement (RTGS) inter-bank payment system. This enables end-of-day delivery versus payment (DVP) services as opposed to Non-DVP . In 2018, HKMA developed
3276-499: A unitary central bank. In the second half of the 20th century, the dismantling of colonial systems left some groups of countries using the same currency even though they had achieved national independence. In contrast to the unraveling of Austria-Hungary and the Ottoman Empire after World War I , some of these countries decided to keep using a common currency, thus forming a monetary union , and to entrust its management to
3402-464: Is a potential measure that could be applied by Central banks to achieve a low-carbon transition. Although there is a historical bias toward high-carbon companies, included in Central banks portfolios due to their high credit ratings, innovative approaches to quantitative easing could invert this trend to favor low-carbon assets. Considering the potential impact of central banks on climate change, it
3528-405: Is a rather recent phenomenon. At the start of the 20th century, approximately two-thirds of sovereign states did not have a central bank. Waves of central bank adoption occurred in the interwar period and in the aftermath of World War II. In the 20th century, central banks were often created with the intent to attract foreign capital, as bankers preferred to lend to countries with a central bank on
3654-467: Is also host to the 2022 Global Financial Leaders' Investment Summit . Central bank Heterodox A central bank , reserve bank , national bank , or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union. In contrast to a commercial bank , a central bank possesses a monopoly on increasing the monetary base . Many central banks also have supervisory or regulatory powers to ensure
3780-676: Is classified as unintended unemployment. For example, structural unemployment is a form of unintended unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment. Macroeconomic policy generally aims to reduce unintended unemployment. Keynes labeled any jobs that would be created by a rise in wage-goods (i.e., a decrease in real-wages ) as involuntary unemployment : Economic growth can be enhanced by investment in capital , such as more or better machinery. A low interest rate implies that firms can borrow money to invest in their capital stock and pay less interest for it. Lowering
3906-546: Is important to consider the mandates of central banks. The mandate of a central bank can be narrow, meaning only a few objectives are given, limiting the ability of a central bank to include climate change in its policies. However, central bank mandates may not necessarily have to be modified to accommodate climate change-related activities. For example, the European Central Bank has incorporated carbon-emissions into its asset purchase criteria, despite its relatively narrow mandate that focuses on price stability. The functions of
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4032-450: Is made easier by two factors: the first is the openness of the economy, with an aggregate demand heavily dependent on international trading partners; this reduces the risk of classic liquidity traps . The second factor is the scarce political clout of the trade unions, which makes it easier to trim the nominal salaries during recessionary times. Moreover, the high saving rates and the moral stigma attached to bankruptcy have kept relatively low
4158-440: Is not central banks' role to conduct climate policy. China is among the most advanced central banks when it comes to green monetary policy. It has given green bonds preferential status to lower their yield and uses window policy to direct green lending. The implications of potential stranded assets in the economy highlights one example of the embedded transition risk to climate change with potential cascade effects throughout
4284-790: Is now known as a central bank was often referred to as a bank of issue ( French : institut d'émission , German : Notenbank ). The reference to central banking in the current sense only became widespread in the early 20th century. Names of individual central banks include, with references to the date when the bank acquired its current name: In some cases, the local-language name is used in English-language practice, e.g. Sveriges Riksbank (est. 1668, current name in use since 1866), De Nederlandsche Bank (est. 1814), Deutsche Bundesbank (est. 1957), or Bangko Sentral ng Pilipinas (est. 1993). Some commercial banks have names suggestive of central banks, even if they are not: examples are
4410-487: The 1997 Asian financial crisis , currency speculators sold the Hong Kong dollar heavily and shorted local stocks and Hang Seng Index futures. The government controversially used the exchange fund to acquire HK$ 120 billion ( US$ 15 billion) worth of blue-chip shares in a two-week market intervention, beginning 12 August 1998 with the aim of punishing and deterring currency speculators . The intervention
4536-604: The Bank of Java (est. 1828 in Batavia ), Banque de l'Algérie (est. 1851 in Algiers ), or Hongkong and Shanghai Banking Corporation (est. 1865 in Hong Kong ), operated from the colony itself. Following the generalization of the transcontinental use of the electrical telegraph using submarine communications cable , however, new colonial banks were typically headquartered in the colonial metropolis; prominent examples included
4662-645: The Bank of Spain in 1782. The Russian Assignation Bank , established in 1769 by Catherine the Great , was an outlier from the general pattern of early national central banks in that it was directly owned by the Imperial Russian government, rather than private individual shareholders. In the nascent United States , Alexander Hamilton , as Secretary of the Treasury in the 1790s, set up the First Bank of
4788-576: The Belgium–Luxembourg Economic Union established in 1921, under which Luxembourg had no central bank, but that was managed by a national central bank (in that case the National Bank of Belgium ) rather than a supranational one. The present-day Common Monetary Area of Southern Africa has comparable features. Yet another pattern was set in countries where federated or otherwise sub-sovereign entities had wide policy autonomy that
4914-488: The Hungarian National Bank operated alongside three other major state-owned banks. For earlier periods, what institutions do or do not count as central banks is often not univocal. Correlatively, different scholars have held different views about the timeline of emergence of the first central banks. A widely held view in the second half of the 20th century has been that Stockholms Banco (est. 1657), as
5040-584: The Jakarta Stock Exchange touched a historic low in September. Moody's eventually downgraded Indonesia's long-term debt to " junk bond ". Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to face the higher costs imposed upon them by
5166-615: The Latin American debt crisis . The effects of the SAPs were mixed and their impact controversial. Critics, however, noted the contractionary nature of these policies, arguing that in a recession , the traditional Keynesian response was to increase government spending, prop up major companies, and lower interest rates. The reasoning was that by stimulating the economy and staving off recession , governments could restore confidence while preventing economic loss . They pointed out that
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5292-451: The National Bank of Czechoslovakia . Brazil established a central bank in 1945, which was a precursor to the Central Bank of Brazil created twenty years later. After gaining independence, numerous African and Asian countries also established central banks or monetary unions. The Reserve Bank of India , which had been established during British colonial rule as a private company, was nationalized in 1949 following India's independence. By
5418-561: The State Bank of India and Central Bank of India , National Bank of Greece , Banco do Brasil , National Bank of Pakistan , Bank of China , Bank of Cyprus , or Bank of Ireland , as well as Deutsche Bank . Some but not all of these institutions had assumed central banking roles in the past. The leading executive of a central bank is usually known as the Governor , President , or Chair . The widespread adoption of central banking
5544-577: The United Kingdom and the United States respectively, Montagu Norman and Benjamin Strong , agreed on a definition of central banks that was both positive and normative . Since that time, central banks have been generally distinguishable from other financial institutions, except under Communism in so-called single-tier banking systems such as Hungary's between 1950 and 1987, where
5670-428: The exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and intervened in the exchange market, buying up any excess domestic currency at
5796-630: The financial system . In response, four broad types of interventions including methodology development, investor encouragement, financial regulation and policy toolkits have been adopted by or suggested for central banks. Achieving the 2°C threshold revolve in part around the development of climate-aligned financial regulations. A significant challenge lies in the lack of awareness among corporations and investors, driven by poor information flow and insufficient disclosure. To address this issue, regulators and central banks are promoting transparency, integrated reporting , and exposure specifications, with
5922-455: The fixed exchange rate with foreign reserves . Neither of these policy responses could be sustained for long, as several countries had insufficient levels of foreign exchange reserves. Very high interest rates, which can be extremely damaging to a healthy economy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that
6048-472: The " structural adjustment package" (SAP). The SAPs called on crisis-struck nations to reduce government spending and deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal solvency , penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in
6174-432: The "General Agreement to Borrow" and the "Emergency Finance Mechanism". The scope and the severity of the collapses led to an urgent need for outside intervention. Since the countries melting down were among the richest in their region, and in the world, and since hundreds of billions of dollars were at stake, any response to the crisis was likely to be cooperative and international. The International Monetary Fund created
6300-521: The 12th century, a network of professional banks emerged primarily in Southern Europe (including Southern France, with the Cahorsins ). Banks could use book money to create deposits for their customers. Thus, they had the possibility to issue, lend and transfer money autonomously without direct control from political authorities. The Taula de canvi de Barcelona , established in 1401, is
6426-472: The 1990s after the implementation of a number of export-oriented reforms. Other economists dispute China's impact, noting that both ASEAN and China experienced simultaneous rapid export growth in the early 1990s. Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of credit that became available generated
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#17327717946076552-498: The 1990s, hot money flew into the Southeast Asia region through financial hubs , especially Hong Kong. The investors were often ignorant of the actual fundamentals or risk profiles of the respective economies, and once the crisis gripped the region, the political uncertainty regarding the future of Hong Kong as an Asian financial centre led some investors to withdraw from Asia altogether. This shrink in investments only worsened
6678-628: The 19th century. The Bank of Finland was founded in 1812, soon after Finland had been taken over from Sweden by Russia to become a grand duchy . Simultaneously, a quasi-central banking role was played by a small group of powerful family-run banking networks, typified by the House of Rothschild , with branches in major cities across Europe, as well as Hottinguer in Switzerland and Oppenheim in Germany. The theory of central banking, even though
6804-551: The Exchange Fund Ordinance. Under the Ordinance, the HKMA's primary objective is to ensure the stability of the Hong Kong currency and the banking system. It is also responsible for promoting the efficiency, integrity and development of the financial system. The HKMA issues banknotes only in the denomination of ten Hong Kong dollars. The role of issuing other banknotes is delegated to the note-issuing banks in
6930-761: The Financial System (NGFS) to evaluate the way in which central banks can use their regulatory and monetary policy tools to support climate change mitigation . Today more than 70 central banks are part of the NGFS. In January 2020, the European Central Bank has announced it will consider climate considerations when reviewing its monetary policy framework. Proponents of "green monetary policy" are proposing that central banks include climate-related criteria in their collateral eligibility frameworks, when conducting asset purchases and also in their refinancing operations. But critics such as Jens Weidmann are arguing it
7056-665: The HKMA began issuing the first batch of virtual bank licenses in Hong Kong; these banks were not required to have physical branches in the city. It is included the Linked Exchange Rate System and noticeable features such as the Aggregate Balance, Certificates of Indebtedness and coins issued and the Outstanding Exchange Fund Bills and Notes. The Interest Rate Adjustment Mechanism is an automatic system that maintains
7182-557: The IMF, the reserves of Thailand and South Korea were perilously low, and the Indonesian Rupiah was excessively depreciated. Thus, the first order of business was... to restore confidence in the currency. To achieve this, countries have to make it more attractive to hold domestic currency, which in turn, requires increasing interest rates temporarily, even if higher interest costs complicate the situation of weak banks and corporations... Why not operate with lower interest rates and
7308-563: The London-based Imperial Bank of Persia , established in 1885, and the Rome-based National Bank of Albania , established in 1925. The State Bank of Morocco was established in 1907 with international shareholding and headquarters functions distributed between Paris and Tangier , a half-decade before the country lost its independence. In other cases, there have been organized currency unions such as
7434-664: The Money Market , in which he advocated for the bank to officially become a lender of last resort during a credit crunch , sometimes referred to as "Bagehot's dictum". The 19th and early 20th centuries central banks in most of Europe and Japan developed under the international gold standard . Free banking or currency boards were common at the time. Problems with collapses of banks during downturns, however, led to wider support for central banks in those nations which did not as yet possess them, for example in Australia. In
7560-473: The Paris-based Banque de l'Indochine (est. 1875), Banque de l'Afrique Occidentale (est. 1901), and Banque de Madagascar (est. 1925). The Banque de l'Algérie's head office was relocated from Algiers to Paris in 1900. In some cases, independent countries which did not have a strong domestic base of capital accumulation and were critically reliant on foreign funding found advantage in granting
7686-471: The U.S. government had pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the United States itself entered a recession in 2001, and arguably the same in the fiscal and monetary policies during the 2008–2009 Global Financial Crisis. Many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down
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#17327717946077812-544: The USD–Baht currency peg, and the Thai government was eventually forced to float the Baht, on 2 July 1997, allowing the value of the Baht to be set by the currency market. This caused a chain reaction of events, eventually culminating into a region-wide crisis. Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in
7938-506: The United States despite heavy opposition from Jeffersonian Republicans . Central banks were established in many European countries during the 19th century. Napoleon created the Banque de France in 1800, in order to stabilize and develop the French economy and to improve the financing of his wars. The Bank of France remained the most important Continental European central bank throughout
8064-474: The United States a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At
8190-561: The United States, the role of a central bank had been ended in the so-called Bank War of the 1830s by President Andrew Jackson . In 1913, the U.S. created the Federal Reserve System through the passing of The Federal Reserve Act . Following World War I , the Economic and Financial Organization (EFO) of the League of Nations , influenced by the ideas of Montagu Norman and other leading policymakers and economists of
8316-583: The affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the "New Arrangement to Borrow" operational. A year earlier, the finance ministers of these same countries had attended the 3rd APEC finance ministers meeting in Kyoto , Japan, on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under
8442-401: The chain objectives of tightened money supply , discouraged currency speculation , stabilized exchange rate, curbed currency depreciation, and ultimately contained inflation . In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows: From then IMF First Deputy managing director, Stanley Fischer in 1998: When their governments "approached
8568-511: The countries most affected by the crisis. Hong Kong , Laos , Malaysia and the Philippines were also hurt by the slump. Brunei , mainland China , Japan , Singapore , Taiwan , and Vietnam were less affected, although all suffered from a general loss of demand and confidence throughout the region. Although most of the governments of Asia had seemingly sound fiscal policies , the International Monetary Fund (IMF) stepped in to initiate
8694-477: The country to balance its budget and repay its debts to the IMF in 2003, four years ahead of schedule. The Thai baht continued to appreciate to 29 Baht to the U.S. dollar in October 2010. In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $ 900 million, huge foreign exchange reserves of more than $ 20 billion, and a good banking sector. However,
8820-624: The country, many factors arising from all aspects, including sports broadcasting on Indonesian television, including: Additionally, the Indonesian motorcycle Grand Prix , which was held at Sentul , was dropped from the 1998 Superbike and MotoGP calendars. World Rally Championship also dropped the Rally Indonesia from their 1998 calendar . The banking sector was burdened with non-performing loans as its large corporations were funding aggressive expansions. During that time, there
8946-858: The countryside and 600,000 foreign workers being sent back to their home countries. The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the U.S. dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $ 17 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 1997, another bailout package of $ 2.9 billion. Poverty and inequality increased while employment, wages and social welfare all declined as
9072-482: The debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by hot money . More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia and Indonesia, which had the added complication of what was called " crony capitalism ". The short-term capital flow was expensive and often highly conditioned for quick profit . Development money went in
9198-560: The early 17th century in leading northwestern European commercial centers, namely the Bank of Amsterdam in 1609 and the Hamburger Bank in 1619. These institutions offered a public infrastructure for cashless international payments. They aimed to increase the efficiency of international trade and to safeguard monetary stability. These municipal public banks thus fulfilled comparable functions to modern central banks. The Swedish central bank, known since 1866 as Sveriges Riksbank ,
9324-422: The early 21st century, most of the world's countries had a national central bank set up as a public sector institution, albeit with widely varying degrees of independence. Before the near-generalized adoption of the model of national public-sector central banks, a number of economies relied on a central bank that was effectively or legally run from outside their territory. The first colonial central banks, such as
9450-691: The economic environment. The devaluation of the Chinese renminbi and the Japanese yen , subsequent to the latter's strengthening due to the Plaza Accord of 1985, the raising of U.S. interest rates which led to a strong U.S. dollar, and the sharp decline in semiconductor prices, all adversely affected their growth. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation . This made
9576-547: The financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its currency peg to the U.S. dollar . Capital flight ensued almost immediately, beginning an international chain reaction. At the time, Thailand had acquired a burden of foreign debt . As the crisis spread, other Southeast Asian countries and later Japan and South Korea saw slumping currencies, devalued stock markets and other asset prices, and
9702-454: The financial conditions in Asia (subsequently leading to the depreciation of the Thai baht on 2 July 1997). Several case studies on the topic of the application of network analysis of a financial system help to explain the interconnectivity of financial markets , as well as the significance of the robustness of hubs (or main nodes). Any negative externalities in the hubs creates
9828-588: The first example of municipal, mostly public banks which pioneered central banking on a limited scale. It was soon emulated by the Bank of Saint George in the Republic of Genoa , first established in 1407, and significantly later by the Banco del Giro in the Republic of Venice and by a network of institutions in Naples that later consolidated into Banco di Napoli . Notable municipal central banks were established in
9954-521: The foreign exchange market. Goals frequently cannot be separated from each other and often conflict. Costs must therefore be carefully weighed before policy implementation. In the aftermath of the Paris agreement on climate change , a debate is now underway on whether central banks should also pursue environmental goals as part of their activities. In 2017, eight central banks formed the Network for Greening
10080-523: The form of gold and silver coins . The mere issuance of paper currency or other types of financial money by a government is not the same as central banking. The difference is that government-issued financial money, as present e.g. in China during the Yuan dynasty in the form of paper currency, is typically not freely convertible and thus of inferior quality, occasionally leading to hyperinflation . From
10206-543: The fund as part of a $ 17 billion bailout organised by the International Monetary Fund (IMF). The HKMA is headquartered in Tower 2 of the International Finance Centre . It purchased fourteen floors in Tower 2. The 55th, 56th, and the 77th to 88th floors were bought for US$ 480 million in 2001. An exhibition area currently containing an exhibit of Hong Kong's monetary history, along with
10332-497: The future, with no favored parties receiving funds by preference. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced. There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In addition, financial systems were to become "transparent", that is, provide
10458-624: The global economy, the US Federal Reserve plays an outsized role in the international monetary market. Being the main supplier and rate adjusted for US dollars, the Federal Reserve implements a set of requirements to control inflation and unemployment in the US. Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. Unemployment beyond frictional unemployment
10584-464: The goal of promoting long-term, low-carbon emission goals, rather than short-term financial objectives. These regulations aim to assess risk comprehensively, identifying carbon-intensive assets and increasing their capital requirements. This should result in high-carbon assets becoming less attractive while favoring low-carbon assets, which have historically been perceived as high-risk, and low volatility investment vehicles . Quantitative easing
10710-518: The gold standard. The use of money as a unit of account predates history. Government control of money is documented in the ancient Egyptian economy (2750–2150 BCE). The Egyptians measured the value of goods with a central unit called shat . Like many other currencies, the shat was linked to gold . The value of a shat in terms of goods was defined by government administrations. Other cultures in Asia Minor later materialized their currencies in
10836-480: The government in exchange for interest-bearing assets such as government bonds. When central banks decide to increase the money supply by an amount which is greater than the amount their national governments decide to borrow, the central banks may purchase private bonds or assets denominated in foreign currencies. 1997 Asian financial crisis The 1997 Asian financial crisis was a period of financial crisis that gripped much of East and Southeast Asia during
10962-404: The highest economic growth rate of any country at the time. Inflation was kept reasonably low within a range of 3.4–5.7%. The baht was pegged at 25 to the U.S. dollar. On 14 and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht. However, Thailand lacked the foreign reserves to support
11088-525: The highest quality. Under that definition, municipal banks of the late medieval and early modern periods, such as the Taula de canvi de Barcelona (est. 1401) or Bank of Amsterdam (est. 1609), issued central bank money and count as early central banks. There is no universal terminology for the name of a central bank. Early central banks were often the only or principal formal financial institution in their jurisdiction, and were consequently often named "bank of"
11214-558: The infrastructure for the Faster Payment System and launched it in September of that year. Banking stability mainly depends on the banking system and supervision. A three-tier banking system ( 銀行三級發牌制度 ) was implemented in the 1980s. Institutions are also managed differently depending on whether they are categorised as licensed banks, restricted license banks or deposit-taking institutions. Overseas banks may also establish local representative offices in Hong Kong. In 2019,
11340-409: The interest is therefore considered to encourage economic growth and is often used to alleviate times of low economic growth. On the other hand, raising the interest rate is often used in times of high economic growth as a contra-cyclical device to keep the economy from overheating and avoid market bubbles. Further goals of monetary policy are stability of interest rates, of the financial market, and of
11466-467: The international financial community. Later that year, in July, South Korea's third-largest car maker, Kia Motors , asked for emergency loans. The domino effect of collapsing large South Korean companies drove the interest rates up and international investors away. In the wake of the Asian market downturn, Moody's lowered the credit rating of South Korea from A1 to A3, on 28 November 1997, and downgraded again to B2 on 11 December. That contributed to
11592-440: The issue of some form of standardized currency, which is essentially a form of promissory note : "money" under certain circumstances. Historically, this was often a promise to exchange the money for precious metals in some fixed amount. Now, when many currencies are fiat money , the "promise to pay" consists of the promise to accept that currency to pay for taxes. A central bank may use another country's currency either directly in
11718-451: The kind of financial information used in the West to make financial decisions. As countries fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics of the situation were similar to that of
11844-534: The late 1990s. The crisis began in Thailand in July 1997 before spreading to several other countries with a ripple effect, raising fears of a worldwide economic meltdown due to financial contagion . However, the recovery in 1998–1999 was rapid, and worries of a meltdown quickly subsided. Originating in Thailand, where it was known as the Tom Yum Kung crisis ( Thai : วิกฤตต้มยำกุ้ง ) on 2 July, it followed
11970-468: The level of defaults on mortgages even during the deep recessions after the 1997 Asian financial crisis and the SARS epidemic in 2002/2003. Under colonial rule , the HKMA did not place funds with local banks not rated by Moody's Investors Service or Standard & Poor's . Only the three note-issuing banks could receive deposits because they had been rated by "objective international standards". During
12096-506: The meeting of the World Bank and IMF in 1997, at an estimated cost of HK$ 485 million. Yam hoped that hosting the event would cement Hong Kong's status as an international financial centre. He added, "The presence of the world's leading finance ministers, central bank governors and top commercial bankers in Hong Kong so soon after the change of sovereignty will help boost international and local confidence in Hong Kong". The HKMA
12222-466: The name was not yet widely used, evolved in the 19th century. Henry Thornton , an opponent of the real bills doctrine , was a defender of the bullionist position and a significant figure in monetary theory. Thornton's process of monetary expansion anticipated the theories of Knut Wicksell regarding the "cumulative process which restates the Quantity Theory in a theoretically coherent form". As
12348-437: The newly established policy of European banking union . The primary role of central banks is usually to maintain price stability, as defined as a specific level of inflation. Inflation is defined either as the devaluation of a currency or equivalently the rise of prices relative to a currency. Most central banks currently have an inflation target close to 2%. Since inflation lowers real wages , Keynesians view inflation as
12474-642: The original issuer of banknotes , counted as the oldest central bank, and that consequently its successor the Sveriges Riksbank was the oldest central bank in continuous operation, with the Bank of England as second-oldest and direct or indirect model for all subsequent central banks. That view has persisted in some early-21st-century publications. In more recent scholarship, however, the issuance of banknotes has often been viewed as just one of several techniques to provide central bank money , defined as financial money (in contrast to commodity money ) of
12600-443: The path of "fast-track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows), maintenance of high domestic interest rates to attract portfolio investment and bank capital, and pegging of the national currency to the dollar to reassure foreign investors against currency risk. The conventional high-interest-rate economic strategy is normally employed by monetary authorities to attain
12726-423: The premises of macroeconomic policies ( monetary and fiscal policy ) of the state are a focus of contention and criticism by some policymakers, researchers and specialized business, economics and finance media. The notion of central banks as a separate category from other banks has emerged gradually, and only fully coalesced in the 20th century. In the aftermath of World War I , leading central bankers of
12852-537: The program, 787 insolvent financial institutions were closed or merged by June 2003. The number of financial institutions in which foreign investors invested has increased rapidly. Examples include New Bridge Capital's takeover of Korea First Bank. The South Korean won , meanwhile, weakened to more than 1,700 per U.S. dollar from around 800, but later managed to recover. However, like the chaebol, South Korea's government did not escape unscathed. Its national debt -to-GDP ratio more than doubled (approximately 13% to 30%) as
12978-464: The rate was almost exactly 8,000 to 1 U.S. dollar. Indonesia lost 13.5% of its GDP that year. In February 1998, President Suharto sacked the incumbent Bank Indonesia governor, J. Soedradjad Djiwandono , but this proved insufficient. Amidst widespread rioting in May 1998 , Suharto resigned under public pressure and Vice President B. J. Habibie replaced him. As a result of the financial crisis that hit
13104-484: The relevant city's or country's name, e.g. the Bank of Amsterdam , Bank of Hamburg , Bank of England , or Wiener Stadtbank . Naming practices subsequently evolved as more central banks were established. The expression "central bank" itself only appeared in the early 19th century, but at that time it referred to the head office of a multi- branched bank, and was still used in that sense by Walter Bagehot in his seminal 1873 essay Lombard Street . During that era, what
13230-405: The role of asymmetric information in the financial markets that led to a " herd mentality " among investors that magnified a small risk in the real economy. The crisis has thus attracted attention from behavioral economists interested in market psychology . Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 1997 . During
13356-408: The role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractionary fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to
13482-550: The rupiah currency trading band from 8% to 12%. As a result, the rupiah suddenly came under severe attack in August. Therefore, on the 14th of the month, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further due to the shift. The IMF came forward with a rescue package of $ 23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and
13608-458: The rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 U.S. dollar. The rate plunged to over 11,000 rupiah to 1 U.S. dollar on 9 January 1998, with spot rates over 14,000 during 23–26 January and trading again over 14,000 for about six weeks during June–July 1998. On 31 December 1998,
13734-448: The same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position. Some economists have advanced the growing exports of China as a factor contributing to ASEAN nations' export growth slowdown, though these economists maintain the main cause of their crises was excessive real estate speculation. China had begun to compete effectively with other Asian exporters particularly in
13860-463: The shock, but nevertheless suffered serious hits in passing, mainly due to its status as a major financial hub and its geographical proximity to Malaysia and Indonesia. By 1999, however, analysts saw signs that the economies of Asia were beginning to recover. After the crisis, economies in East and Southeast Asia worked together toward financial stability and better financial supervision. The causes of
13986-512: The sole authorized distributor of banknotes, or to function as a lender of last resort to banks suffering a liquidity crisis . In the early 18th century, a major experiment in national central banking failed in France with John Law 's Banque Royale in 1720–1721. Later in the century, France had other attempts with the Caisse d'Escompte first created in 1767, and King Charles III established
14112-401: The solution to involuntary unemployment. However, "unanticipated" inflation leads to lender losses as the real interest rate will be lower than expected. Thus, Keynesian monetary policy aims for a steady rate of inflation. Central banks as monetary authorities in representative states are intertwined through globalized financial markets. As a regulator of one of the most widespread currencies in
14238-821: The stability of commercial banks in their jurisdiction, to prevent bank runs , and in some cases also to enforce policies on financial consumer protection and against bank fraud , money laundering , or terrorism financing . Central banks play a crucial role in macroeconomic forecasting, which is essential for guiding monetary policy decisions, especially during times of economic turbulence. Central banks in most developed nations are usually set up to be institutionally independent from political interference, even though governments typically have governance rights over them, legislative bodies exercise scrutiny, and central banks frequently do show responsiveness to politics. Issues like central bank independence, central bank policies and rhetoric in central bank governors discourse or
14364-590: The stability of the Hong Kong dollar exchange rate. Lately the HKMA has been disclosing the forecast change in the Aggregate Balance attributes to increase the transparency of the Currency Board operation. In 1995, Nobel Prize–winning economist Milton Friedman mistakenly predicted the Hong Kong dollar's demise within two years of the 1997 handover . He also predicted the absorption of the territory's financial reserves of US$ 43 billion ( HK$ 335.4 billion) by Beijing, which would not be able to bear
14490-417: The subrogation of Hong Kong's monetary policy to the United States. As with any monetary system not based on a fiat money (which includes currency boards, currency unions and the traditional gold standard ) it is impossible to use monetary policy to stabilise the business cycle : this means that any macroeconomic adjustment has to be achieved by changes in the prices of assets and labour. In Hong Kong, this
14616-433: The territory, namely The Hongkong and Shanghai Banking Corporation , Standard Chartered Bank and Bank of China . The official reserves of Hong Kong and the banking system are important underpinnings of the linked exchange rate system . Since 1995, the HKMA has entered into a stability pact with central banks in Malaysia, Thailand, Indonesia and Australia to engage in repurchase agreements , which provide liquidity on
14742-466: The tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to float . The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis. Other economists, including Joseph Stiglitz and Jeffrey Sachs , have downplayed
14868-755: The time, took an active role to promote the independence of central banks, a key component of the economic orthodoxy the EFO fostered at the Brussels Conference (1920) . The EFO thus directed the creation of the Oesterreichische Nationalbank in Austria , Hungarian National Bank , Bank of Danzig , and Bank of Greece , as well as comprehensive reforms of the Bulgarian National Bank and Bank of Estonia . Similar ideas were emulated in other newly independent European countries, e.g. for
14994-584: The value of the pound. In the United Kingdom until the mid-nineteenth century, commercial banks were able to issue their own banknotes, and notes issued by provincial banking companies were commonly in circulation. Many consider the origins of the central bank to lie with the passage of the Bank Charter Act 1844 . Under the 1844 Act, bullionism was institutionalized in Britain, creating
15120-574: Was a haste to build great conglomerates to compete on the world stage. Many businesses ultimately failed to ensure returns and profitability. The chaebol , South Korean conglomerates, simply absorbed more and more capital investment. Eventually, excess debt led to major failures and takeovers. Amongst other stimuli, the crisis resulted in the bankruptcy of major Korean companies, provoking not only corporations, but also government officials towards corruption. The Hanbo scandal of early 1997 exposed South Korea's economic weaknesses and corruption problems to
15246-505: Was dissolved due to the crisis, and eventually Daewoo Motors was sold to the American company General Motors (GM). The International Monetary Fund (IMF) provided US$ 58.4 billion as a bailout package. In return, Korea was required to take restructuring measures. The ceiling on foreign investment in Korean companies was raised from 26 percent to 100 percent. In addition, the Korean government started financial sector reform program. Under
15372-519: Was echoed to varying degrees in the organization of the central bank itself. These included, for example, the Austro-Hungarian Bank from 1878 to 1918, the U.S. Federal Reserve in its first two decades, the Bank deutscher Länder between 1948 and 1957, or the National Bank of Yugoslavia between 1972 and 1993. Conversely, some countries that are politically organized as federations, such as today's Canada, Mexico, or Switzerland, rely on
15498-627: Was founded in Stockholm in 1664 from the remains of the failed Stockholms Banco and answered to the Riksdag of the Estates , Sweden's early modern parliament. One role of the Swedish central bank was lending money to the government. The establishment of the Bank of England was devised by Charles Montagu, 1st Earl of Halifax , following a 1691 proposal by William Paterson . A royal charter
15624-466: Was granted on 27 July 1694 through the passage of the Tonnage Act . The bank was given exclusive possession of the government's balances, and was the only limited-liability corporation allowed to issue banknotes . The early modern Bank of England, however, did not have all the functions of a today's central banks, e.g. to regulate the value of the national currency, to finance the government, to be
15750-402: Was known as part of the " Asian economic miracle ". In the mid-1990s, Thailand , Indonesia and South Korea had large private current account deficits, and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, a series of external shocks began to change
15876-485: Was widely criticised as being detrimental to Hong Kong's reputation as one of the world's financial centres. Democratic Party leader Martin Lee Chu-ming criticised the government for becoming "a player, a very key player" instead of being a regulator. Conversely, one speculator said in hindsight that the government's intervention "raised public confidence in the market when it was near total collapse" and "prevented
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