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Following is a question by the Hon Alan Leong and a written reply by the Financial Secretary, Mr John Tsang, at the Legislative Council today (July 4):
Question:
Since the discovery of a number of high-quality counterfeit $1,000 bank notes purported to be issued by a particular bank in the community a few months ago, many shops have refused to accept such bank notes. Moreover, an increasing number of shops and drivers of public transport carriers have refused to accept 10 cents, 20 cents and 50 cents coins in recent years. In this connection, will the Government inform this Council whether:
(a) it has assessed the prevalence of the aforesaid situation at present, as well as the impact of the situation on currency circulation and people's life; if it has, of the assessment results, and whether it will provide a channel to call in the coins of small denomination such as 10 cents, 20 cents and 50 cents; if it has not, the reasons for that;
(b) it has considered taking measures, such as enhancing the security features of bank notes as well as publicity and education, to encourage various sectors of the community to accept all legal tender; if it has, of the details of the measures and the implementation schedule; if not, the reasons for that; and
(c) it will, by way of legislation, prohibit shops from refusing to take any notes and coins which are legal tender; if it will, of the legislative timetable and the proposed penalty; if not, the reasons for that?
Reply:
Madam President,
(a) We have been monitoring news reports about retailers refusing to accept large-denomination notes and small-denomination coins. According to the law enforcement experience of frontline Police officers and information from other channels, the situation is not common or becoming more common. Fewer than 10 citizens complained to the Hong Kong Monetary Authority (HKMA) in the last two years about retailers refusing to accept coins as payment. The HKMA has also monitored the impact of refusal to accept large-denomination notes and small-denomination coins on the circulation of notes and coins. Statistics show that the demand for and circulation of coins have not been affected. In fact, there has been an increase in the demand for small-denomination coins. The value of coins in circulation has increased by 0.6% in the last two years. As regards the large-denomination notes, because of the surfacing of counterfeit $1,000 notes in March, the value of $1,000 notes in circulation has decreased by 17% since March, while that of $500 notes has increased by 18%. With increased public awareness of the counterfeiting problem, the number of counterfeit $1,000 notes discovered has decreased substantially from 1,721 in March to 69 in May. Circulation of $1,000 notes has stabilised in May and June, which demonstrates that the public have gradually regained confidence in the $1,000 notes.
Most banks provide coin-deposit services free of charge. Bank customers can exchange for value up to 300 to 500 coins a day or deposit them into accounts without having to pay any fees. We also understand that some private security escort companies provide services for handling large number of coins for goods or service providers. Since these security companies also need coins, they are willing to collect coins from certain industries (such as the minibus operators.)
(b) The HKMA has taken a number of measures to maintain currency stability, improve the security features of currency notes and promote confidence in the Hong Kong dollar. The HKMA has introduced new security features and design of currency notes to make them less vulnerable to counterfeiting. The latest series of banknotes was introduced in 2003 and 2004. Since 1985 there have been five series of $1,000 notes. Compared with other jurisdictions, Hong Kong is even more serious about improving the security features of currency notes. The HKMA will continue to explore ways to improve the security and design of currency notes. The issue of the new ten-dollar polymer note in early July is a good example.
In respect of publicity and education, the HKMA and the Police have arranged a number of seminars for the staff of banks, money changers and retailers to raise their awareness of the security features of our currency notes and to explain how to identify the latest counterfeit notes. We aim to enhance their confidence in large-denomination notes. The HKMA and the Police will continue to jointly organise such seminars, not only to teach the participants how to identify counterfeit notes, but also to explain the meaning of legal tender and the acceptance of legal tender as a valid and legal means of payment. The HKMA website also contains information about how to distinguish counterfeit notes and the additional security features of the 2003-series banknotes. We will continue with these efforts and adjust the focus if necessary.
(c) Notes and coins issued in accordance with to the Legal Tender Notes Issue Ordinance and the Coinage Ordinance are legal tender in Hong Kong. As legal tender, they are by law regarded as valid and legal means of payment to adequately and effectively fulfil payment obligations. However, as in all commercial transactions, both parties can determine the terms of transaction on their own, including the means of payment. Whether to accept notes and coins of any denomination as payment is purely a commercial decision for goods or service providers. The above ordinances do not confer any authority upon the Government to force goods or service providers to accept any notes and coins. Where disagreements arise, the Police will treat them as "dispute" cases and assist the parties to resolve the matter.
We have also studied the laws relating to "legal tender" in other countries and how they are enforced. We understand that most countries, including the UK, Canada, Australia, the US and Singapore, have laws on "legal tender" to establish the legal status of their currencies. However, they do not have legislation to compel their residents or goods or service providers to accept the legal tender as payment or to punish those who refuse to accept it. In these countries, the buyers and the sellers can determine the means of payment on their own, which is similar to the situation in Hong Kong.
We believe that the current arrangement of allowing both parties to a transaction to determine the payment method will encourage the development of other means of payment (such as electronic money). The above countries also adopt this open-minded position. On the contrary, legislation to prohibit goods or service providers from refusing to accept legal tender notes and coins might hinder the development of technology and the more effective electronic means of payment. It will also cause inconvenience to the goods or service providers as they may commit an offence by not having enough change to give a customer who uses a large-denomination note.
After considering the above factors and the practices of most other countries, the Administration considers it more flexible to allow both parties to a transaction to determine the method of payment on their own. This will also encourage the development of more diversified means of payment, which are beneficial to the development of Hong Kong's economy. The Administration therefore has no intention to legislate to prohibit or penalise the refusal of accepting legal tender as payment.
Ends/Wednesday, July 4, 2007
Issued at HKT 17:05
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