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So the Hong-Kong currency board functions as a potential lender of last resort and a deposit insurer since it must hold enough foreign reserves to cover in full the aggregate liabilities of the private banks.

It also functions as a clearinghouse for interbank payment and settlement.

The role of the Fed is totally incidental here. They might as well have mandated that the HKMA must have enough gold reserves (or barrels of oil) to back all the banks' liabilities.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:24:25 AM EST
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