Combat

You may argue: The bond does not aim to finance our government; it is meant for helping the Hong Kong citizens to combat inflation.

Alas, the idea is innovative - again defined by Humphrey Appleby.

The teaching in course-101 of economics states that inflation is the decline in purchasing power of all the money within a system. What good is there to have a tiny proportion of that sum being free from inflation?

The macroscopic fact is, at the 3rd quarter of 2010, the M1 - narrow definition - money supply was HK$1.07 trillion, and HK$5 billion of inflation-indexed bond is proposed - which is 0.5% of the whole system. The microscopic layman consideration is, if you have HK$100,000 of saving and is (generously) allowed to buy the bond for HK$10,000, does that save you from the trouble of worrying about the remaining 90% of the money?

PS. Frequent visitors may know I am always suspicious about the reported inflation rate - even if it is calculated in the most meticulous manner. My argument has been elaborated previously. (See http://ccszeto.blogspot.com/2008/01/inflation.html)

PPS. I deliberately omit the more important topic and serious consideration here: If the inflation rate is high and our government holds so much reserve, is it having an effective means to protect the erosion of that HK$70 billion?