HONG KONG, May 18 (Xinhuanet) -- The Hong Kong Monetary Authority (HKMA) announced here Wednesday the introduction of three refinements to the operation of the Linked Exchange Rate System, and putting the local dollar into a fixed trading band of 7.75-7.85 to the US dollar.

    The refinements are aimed at removing uncertainty about the extent to which the exchange rate may strengthen under the Linked Exchange Rate System and promoting the smooth functioning of the money and foreign exchange markets in accordance with currency board arrangements.

    According to the authority, they will make three refinements tothe exchange rate system.

    First, they will introduce with immediate effect of a strong-side convertibility undertaking by the HKMA to buy US dollars fromlicensed banks at 7.75.

    Second, they will shift the existing weak-side convertibility undertaking by the HKMA to sell US dollars to licensed banks from 7.80 to 7.85, so as to achieve symmetry around the Linked Rate of 7.80. This shift will be achieved in a gradual manner over five weeks by moving the exchange rate of the weak-side convertibility undertaking by 100 pips on every Monday starting with 7.81 on May 23, 2005 until it reaches 7.85 on June 20, 2005;

    Third, within the zone defined by the levels of the convertibility undertakings (the "convertibility zone"), the HKMA may choose to conduct market operations consistent with currency board principles. These market operations shall be aimed at promoting the smooth functioning of the Linked Exchange Rate System, for example, by removing any market anomalies that may arise from time to time.

    The authority said they will continue to maintain a high degreeof transparency in the operation of the Linked Exchange Rate system. The impact on the aggregate balance arising from deals initiated by licensed banks at the levels of the convertibility undertakings and market operations initiated by the authority, if any, within the convertibility zone will, as is the current practice, be announced immediately.

    The relevant information will also be included in the monthly reports on currency board operations to the currency board sub-committee of the Exchange Fund Advisory Committee, which are published on the HKMA website and in the HKMA's quarterly bulletin.

    "The refinements to the operation of the Linked Exchange Rate System introduced today by the HKMA will contribute to enhancing monetary and financial stability which is clearly in the public interest," said Henry Tang, Hong Kong Financial Secretary.

    "The government has no plan or intention to change Hong Kong's Linked Exchange Rate System," Tang added.

    The Chief Executive of the HKMA, Joseph Yam, said the refinements took into account changing market conditions and the recent experience in the operation of the Linked Exchange Rate System. "The introduction of the convertibility undertaking on thestrong-side should remove uncertainty about the extent to which the exchange rate may strengthen. It should also reduce the usage of the Hong Kong dollar as a vehicle for speculation on a revaluation of the renminbi," he said. Enditem