The recent fall in Hong Kong current account surplus reflects rises in domestic consumption and investment, said Hong Kong Monetary Authority Chief Executive Joseph Yam.

In his Viewpoint column published on the authority's website Thursday, Yam said the drop is consistent with national income account statistics, which indicate a rebound in consumption and investment in the first half of 2004.

Whether or not Hong Kong's current account moves into deficit, and the surplus Hong Kong dollar liquidity will be depleted, remains to be seen, said Yam.

Yam said current account statistics are essential to ensuring people can respond effectively to external financial shocks, and the financial system is able to cope with them.

For many economies, a current account surplus or deficit amounting to 4 percent or 5 percent of GDP is considered large.

But Yam said that for Hong Kong the surplus or deficit can be very large and can move very quickly.

"This was indeed the case in the past year or so. For the year 2003 as a whole, the current account surplus was over 10 percent of GDP, a figure that is high by both international standards and Hong Kong's historical experience," said Yam.

"This probably explains why there was an abundant supply of foreign exchange in the second half of last year, requiring our creating Hong Kong dollars and taking in the foreign exchange, to maintain exchange rate stability," said Yam.