What must be ensured when designated banks are authorized to issue Hong Kong currency?

When designated banks are authorized to issue Hong Kong currency, it is essential that issues are soundly based. This principle ensures that the currency maintains its value and trust among the public. Sound issuance means that the volume of currency in circulation is backed by adequate reserves, which can include assets like foreign currency reserves or gold, thus safeguarding against inflation and ensuring that currency holders have confidence in its acceptability for transactions.

The concept of sound issuance is crucial for a stable monetary system because it prevents excessive printing of money without proper backing, which could otherwise lead to devaluation and loss of public trust. By emphasizing that issues must be soundly based, it aligns with the broader goals of maintaining economic stability and consumer confidence in the integrity of the currency.

The focus on soundness in the issuance of currency underlines the responsibility of banking institutions in the financial system, ensuring they operate in a way that supports the overall health of Hong Kong’s economy.