We are all reborn, who wants to be the richest man?

Chapter 695: Preparing for the Depegging of the Hong Kong Dollar

On August 1, the Hong Kong government established the Post Office Operating Fund, which means that the Post Office will operate on a self-financing basis and the Hong Kong government will no longer provide funding.

This also means that the Hong Kong government's postal fees will increase in the future. Fortunately, not many individuals use postal services now, so there is not much expenditure.

The companies that use postal services the most in Hong Kong are businesses. For matters like bank credit cards, utility bills, loans, etc., many letters will be sent to you in the form of postal bills every month.

This is very Western, convenient yet backward.

However, the Postal Service's operating fund did not receive much attention because the establishment of two other investment companies on the same day attracted everyone's attention.

One is the Hong Kong Island Investment Fund Company, abbreviated as Hong Kong Investment.

The company's funding comes from Hong Kong Island's fiscal reserves, and it will set aside HK$100 billion for investment.

The PY transaction between Luo Nianzhong and England some time ago tacitly agreed that Hong Kong Island’s fiscal reserves would be used for infrastructure construction with a total of HK$3200 billion.

In return, London agreed to admit Jason's cousin Fieldsflick to the Privy Council, and before 97, he would be sent to an important position in the Hong Kong Island Court.

Even with the HK$3200 billion, the Hong Kong government's fiscal reserves are still sufficient, with less than HK$3300 billion left.

Even if 1000 billion Hong Kong dollars is taken out, the Hong Kong government's fiscal reserves will still be rich.

The other company is the Hong Kong Foreign Exchange Reserve Investment Company, abbreviated as Hong Kong Foreign Exchange Reserve Investment Company.

As the name suggests, this company's funds come from foreign exchange reserves, and it will take out 800 billion US dollars.

Hong Kong's foreign exchange reserves have now exceeded US$3000 billion, while the corresponding amount of Hong Kong dollars issued is less than US$1700 billion. This is also a lucrative place.

The reason for setting up these two investment companies is to make money from money. The British are not so kind. They know that the money cannot be taken away, so they let all Hong Kong citizens supervise it, for fear that the rabbits will take it away.

Why did Luo Nianzhong agree? Because the two investment companies would be managed by Far Eastern Bank.

In the past, the management fees for these two fiscal reserves of Far East Bank were very low, otherwise Hong Kong people would not have ridiculed Far East Bank as a big spender of the Hong Kong government.

Now, if we change the approach, Far East Bank will receive multiple times the management fee each year.

As for Hong Kong citizens, they are very willing to pay more management fees.

Because an investment company has been established, this means that the money can be invested more aggressively and the returns can be greater.

How did Far Eastern Bank earn profits from these two funds in the past? It used a very professional and textbook management method, focusing on risk diversification.

In fact, it means investing in everything, but not much in anything.

Stocks, bonds, inflation-protected bonds, real estate, private equity, government bonds, etc. from various countries.

The main feature is stability with low risk, but the returns are also average.

If Luo Nianzhong had not known about several major financial events, and had managed to escape danger each time and buy at the bottom at low prices, how could the Hong Kong government have so much money?

However, it is different if you set up an investment company. You can make high-risk and aggressive investments such as equity investment, that is, buying stocks to invest in start-ups.

Hong Kong's economy is doing so well now, and the market value of Internet companies is soaring. Don't you think Hong Kong citizens are jealous?
“There still needs to be a focus, Hong Kong investment should be prudent, with a small amount invested in stocks.

However, Hong Kong's overseas investments can be more aggressive, focusing on stocks and supplemented by other investments."

On the same day that the Hong Kong government announced the establishment of two major investment companies, Luo Nianzhong came to Far Eastern Bank.

Luo Nianzhong attaches great importance to the establishment of two major investment companies this time, as it is related to the reform of the Hong Kong dollar.

If possible, when Hong Kong Island's economy has been completely transformed and upgraded and becomes the top level of economic construction, with high value-added industries as its core, Luo Nianzhong would not mind decoupling the Hong Kong dollar.

The rapid economic development of Hong Kong Island in recent years is partly due to the boost from the Far East, but the fixed exchange rate is the biggest ballast.

Why are Hong Kong stocks so prosperous? Why do foreign capital institutions dare to invest heavily in Hong Kong Island? One of the most important reasons is the stability of the Hong Kong dollar.

All foreign investors hope that the exchange rate of the investment location is stable. For example, the subsequent economic recession of the island country was also due to the sharp fluctuations in the exchange rate.

You can't have worked so hard to make money from my investment, only to find that you have lost a lot of money after exchanging it back to your own currency? Who would want to invest then?

Therefore, if you want to untie the bond and keep the exchange rate stable, you need money to manipulate the exchange rate. Basically, all countries use the policy of controlling currency stability to control interest rates, that is, to control the speed of capital circulation in the country.

Just like a faucet, the lower the interest rate, it's like the faucet is turned wider and the water flows faster.

If the water flows too fast, your basin will not have enough time to collect the water and will naturally overflow, which is called inflation.

But Hong Kong Island is different. Most of Hong Kong Island’s currency is not circulated in Hong Kong Island because it is anchored to the US dollar and can be invested globally.

This results in different circulation methods, with the Hong Kong dollar circulated more across borders.

Because of this, adjusting through interest rates is simply not feasible because its effect is slow and indirect.

But the exchange rate is different, and the effect is immediate.

For example, if prices overseas suddenly rise and things become more expensive, how can it be that the same value of Hong Kong dollars and the same value of US dollars can buy the same things?

It’s possible through interest rates, but how can you ensure that it is consistent with the US dollar?
If they are inconsistent, the exchange rate will fluctuate, which will result in a situation where I clearly make money from you, but actually suffer a loss when I convert it into my own currency.

The controllable exchange rate is different, just like the fixed exchange rate of the Hong Kong dollar. If it appreciates, I will print money, and if it depreciates, I will buy it. I can intervene in the exchange rate directly and quickly.

Although it is still consistent with the current Hong Kong dollar manipulation, it will not be completely tied to the US dollar like it is now, and it will be much more flexible.

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Of course, everything in the economy is the same. Whether adjusting the exchange rate or the interest rate, the other will definitely be affected, but the main logic will not change.

The premise of all this is money. If the Hong Kong dollar appreciates, I can just print money like crazy. If it falls, I must have enough money to buy it back.

Is there a downside? Yes, that is, when foreign exchange reserves are less than foreign exchange reserves, there are opportunities to exploit loopholes, such as those countries that were harvested during the Asian financial crisis.

But there is one advantage of giving up the fixed exchange rate, that is, we don't have to let the United States take advantage of us at will. At least we don't have the possibility of a fight to the death, and you can't just do whatever you say.

However, such a fight to the death will basically not happen. The Hong Kong dollar will basically maintain its current purchasing power range in the future. Everything is for stability. The most important thing is not to be constrained by the US dollar in finance.

"What does Luo Sheng think about the future strategies of these two companies?"

Since Luo Nianzhong was able to come here first, he must have some ideas.

"We will focus on Hong Kong Island first, and then when we have more money we will invest and develop globally."

With the completion of the Lamma Island Science Park, Hong Kong Island has once again ushered in development opportunities.

This is mainly the electronics industry. The Far East Group controls the upstream design raw materials and the midstream manufacturing lithography, but the downstream packaging and testing businesses with lower added value and not much core technology are basically handed over to other companies.

In addition, Hong Kong Island is a free port, which means that the Lamma Island Science Park has received many applications for settlement by downstream industrial companies, especially Taiwanese companies.

A Far East system can make too many related companies well-off, and these companies are all worthy of investment.

With the external expansion of the two major trump cards, the electronics industry and the Internet, the two investment companies naturally completed their exit smoothly.

Another benefit is that it drives the development of the financial industry. The globalized economy requires large banks like Far Eastern Bank to pay attention to the 24-hour dynamics of the global market, such as government bonds, foreign exchange, gold, etc. The transactions are basically around the clock. When the European market is closed, the Asian market is closed, and when the Asian market is closed, the American market is closed.

Therefore, these big banks have at least three headquarters around the world, one in the United States, one in Europe, and one in Asia. It is not uncommon for some to have six or seven headquarters.

Given Hong Kong's investment environment, if you were a Western investment institution, wouldn't you consider Hong Kong as the first place to set up your headquarters in Asia?

Hong Kong has a good investment environment, a high level of education, and bilingualism in Chinese and English. Most importantly, it has low taxes, which is also the most important factor for all investment companies investing overseas.

Relying on these, Hong Kong Island's economic growth is far from over. This is the future development of Hong Kong Island that Luo Nianzhong wants to create.

After telling Du Huilian about his idea, Luo Nianzhong wanted to hear his opinion.

Du Huilian thought about it and said, "It is feasible, but a lot of things still need to be pre-planned, and we cannot rush to decouple the exchange rate."

"Of course I know" Luo Nianzhong knows that currency decoupling is a big deal.

“You’d better prepare, maybe it will take three years, maybe five years, maybe longer.

I don’t know the timing, but the Hong Kong dollar will definitely be depegged.”

(End of this chapter)