Norman Chan Pledges to Keep Dollar Peg, Intervenes

By Bob Chen

Oct. 2 (Bloomberg) -- Hong Kong Monetary Authority Chief Executive Norman Chan said he will maintain the city’s fixed exchange rate, after the central bank intervened under his watch for the first time to stop the Hong Kong dollar gaining.

Chan, who began work as the head of the HKMA today, said his first task was “to keep our currency market’s stability through upholding our linked exchange-rate system.” The HKMA injected HK$3.1 billion ($400 million) of funds into banks to prevent the currency from rising beyond its fixed rate.

The 54-year-old said he wanted to consolidate Hong Kong’s status as an international finance center and expand the city’s role in helping China promote the yuan’s use for commerce and investment abroad. China’s government this week began selling yuan- denominated bonds for the first time in the city, tapping the 56.7 billion yuan ($8.3 billion) in yuan deposits at Hong Kong banks.

Bank of East Asia Ltd. and HSBC Holdings Plc’s China unit have already sold yuan bonds in Hong Kong this year, the first foreign banks to do so, and the city is participating in a trial program allowing the currency’s use in trade settlement with the mainland.

“Chan’s main challenge will be making sure that banks are prepared for increased usage of yuan in the territory,” said Tim Condon, head of Asia research in Singapore at ING Groep NV. He forecast the yuan will gradually be used for day-to-day transactions in Hong Kong.

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The city’s currency was pegged at HK$7.8 versus the greenback in 1983 and from 2005 was allowed to trade in a range of HK$7.75 to HK$7.85. It traded at HK$7.7502 today.

“The global economy and financial system is still facing a lot of uncertainties,” Chan said at a press briefing today. “At this unusual time the HKMA faces a lot of challenges.”

The HKMA intervened on three days in September, including the latest purchase of dollars that started on the final day of the month and continued into Oct. 1. It also acted on three days in August, compared with 14 in July, six in June and 10 in May, according to data compiled by Bloomberg. Central banks intervene in the currency markets by arranging purchases or sales of foreign exchange.

Chan, named July 17 to succeed Joseph Yam as chief executive of the HKMA, takes over management of a $223 billion currency reserve pool, the world’s eighth largest. Yam, who had been chief executive of the HKMA since its establishment in 1993, said Aug. 26 his successor would support the fixed exchange rate.

“The peg is a really fairly resilient and robust exchange- rate arrangement, so if Norman doesn’t introduce any discretion, he should be fine,” Condon said.

Chan joined the civil service in 1976 after graduating from the Chinese University of Hong Kong with a bachelor’s degree in sociology. He was an executive director of the HKMA when it was established and became deputy chief executive in 1996.

To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net