The Monetary Authority will monitor the recent inflow of funds, its Chief Executive Joseph Yam says, noting up to the end of 2008 the aggregate balance stood at $158 billion - almost three times the 2004 record of $55 billion.

In his weekly Viewpoint column published today Mr Yam said the inflow does not seem to be for exchange-rate speculation, and confidence in the Government's determination to maintain the linked exchange rate and the authority's ability to deliver exchange-rate stability has remained high.

"Indeed, in difficult times like this, monetary stability and, particularly in the case of a highly externally-oriented economy, exchange-rate stability, is crucial," he said.

The market consensus about the causes for the inflow seems to be that unwinding of carry trades involving the shorting of Hong Kong dollars, and corresponding longing of foreign currencies with higher interest rates, by the non-bank sector tops the list.

Mr Yam said at a time when the effectiveness of financial intermediation is being affected by the continuing global financial crisis, the local non-bank sector is finding it necessary to repatriate funds from overseas to finance their operations here.

"The international investment position of Hong Kong measured by overseas assets as a percentage of GDP is among the highest in the world and this is proving helpful in coping with the financial crisis," he added.

He said the third reason may simply be capital inflow to position for investment in Hong Kong, having regard to the better economic prospects of the region, in particular China, to climb out of the global recession.

The fourth possible reason, he said, could be that the local financial system, particularly the banking system, may have become a safe haven for international funds given the blanket deposit protection introduced here, albeit only until the end of 2010.

"We will continue to keep a close watch on developments, not least for the purpose of maintaining monetary stability, but also to be alert to any possible distortions in the banking system resulting from the inflow of funds," Mr Yam said.