The MasterBlog: 30 years of the #HongKong #dollar: Buy now at 1983 prices @TheEconomist
Subscribe to The MasterBlog in a Reader Subscribe to The MasterBlog by Email

MasterBlogs Headlines

Friday, October 18, 2013

30 years of the #HongKong #dollar: Buy now at 1983 prices @TheEconomist

It's incredible Hong Kong has been able to keep its peg for 30 years. 

Buy now at 1983 prices

 The skyline has changed but the exchange rate hasn’t
“WHATEVER exchange-rate system a country has, it will wish at some times that it had another one,” according to Stanley Fischer, a former central banker. Many countries find it hard to cope with a floating currency and even harder to stick to a fixed one. It is therefore remarkable that Hong Kong this week celebrated the 30th anniversary of its currency’s peg to the dollar.
This crude but effective system was adopted on October 17th 1983 to stop a currency crisis. Since then it has survived three American recessions, SARS (Severe Acute Respiratory Syndrome) and Soros (ie, George), a fabled currency speculator, who attacked the peg during the Asian financial crisis.
In recent years Hong Kong’s peg has come under upward, not downward pressure. In maintaining its fixed rate to the dollar, Hong Kong has imported the Federal Reserve’s easy monetary policy despite its healthier economy. The result has been high inflation and surging home prices. Even as its economy has diverged from America’s, it has converged with that of the rest of China. Yet the Hong Kong dollar and the yuan have been growing apart. The Hong Kong dollar’s peg was once also a tight link to the yuan, which was itself pegged to America’s currency. But since China modified the peg, the yuan has appreciated by over a third.
As Mr Fischer suggested, some economists now wish that Hong Kong had another system. It could, for example, let its exchange rate crawl upwards to curb inflation, as Singapore does. Or it could track the rising yuan. Eventually it could even adopt the mainland’s currency; over 10% of bank deposits in Hong Kong are already in yuan.
But these alternatives have drawbacks of their own. China may now dominate Hong Kong’s trade, but much of that trade is still priced in dollars, points out Li-Gang Liu of ANZ, a bank. Besides, the yuan’s value is still fixed each morning by China’s central bank, and yuan assets are fenced in by capital controls. Pegging to an inconvertible yuan could destroy Hong Kong’s role as an international financial centre, Mr Liu argues.
Over time Hong Kong has adapted to some of the peg’s constraints. Its exchange rate may be rigid, but its other prices and wages are remarkably flexible. During the financial crisis, even senior civil servants took a pay cut. This flexibility allows the economy to adjust quickly to cyclical ups and downs without the help of an independent monetary policy.
Prices, particularly for property, do sometimes take on a life of their own. But a more flexible exchange rate is not enough by itself to prevent asset-price booms: Singapore’s house prices have also soared despite its strengthening currency. And in some cases the currency itself can be the asset that takes off. The Swiss franc, for example, strengthened dramatically during the euro crisis, prompting its central bank to intervene. As nearby countries like India and Indonesia fret about capital outflows and plunging currencies, the stability offered by Hong Kong’s peg looks as good on its 30th birthday as it ever has.

The Hong Kong dollar: Buy now at 1983 prices | The Economist


No comments:

Post a Comment

Commented on The MasterBlog

Tags, Categories

news United States Venezuela Finance Money Latin America Oil Current Affairs Middle East Commodities Capitalism Chavez International Relations Israel Gold Economics NT Democracy China Politics Credit Hedge Funds Banks Europe Metals Asia Palestinians Miscellaneous Stocks Dollar Mining ForEx Corruption obama Iran UK Terrorism Africa Demographics Government UN Living Bailout Military Russia Debt Tech Islam Switzerland Philosophy Judaica Science Housing PDVSA Revolution USA War petroleo Scams articles Fed Education France Canada Security Travel central_banks OPEC Castro Nuclear freedom Colombia EU Energy Mining Stocks Diplomacy bonds India drugs Anti-Semitism populism Arabs Brazil Environment Irak Saudi Arabia elections Art Cuba Food Goldman Sachs Syria Afghanistan Hamas Lebanon Silver Trade copper Anti-Israel Egypt Hizbollah Madoff Ponzi Warren Buffett press Aviation BP Euro FARC Gaza Honduras Japan Music SEC Smuggling humor socialism trading Che Guevara Freddie Mac Geneve IMF Spain Turkey currencies violence wikileaks Agriculture Bolívar ETF Restaurants Satire communism computers derivatives Al-Qaida Bubble FT Greece NY PIIGS Republicans Sarkozy Space Sports BRIC CITGO DRC Flotilla Germany Globovision Google Health Inflation Law Libya Mexico Muslim Brotherhood Nazis Pensions Peru Uranium cnbc crime cyberattack fannieMae pakistan stratfor Apollo 11 Autos BBC Bernanke CIA Chile Climate change Congo Democrats EIA Haiti Holocaust IFTTT ISIS Jordan Labor M+A New York OAS Philanthropy Shell South Africa Tufts Ukraine bitly carbon earthquake facebook racism twitter Atom BHP Beijing Business CERN CVG CapitalMarkets Congress Curaçao ECB EPA ETA Ecuador Entebbe Florida Gulf oil spill Harvard Hezbollah Human Rights ICC Kenya L'Oréal Large Hadron Collider MasterBlog Morocco Nobel Panama Paulson RIO SWF Shiites Stats Sunnis Sweden TARP Tunisia UN Watch Uganda VC Water Yen apple berksire hathaway blogs bush elderly hft iPad journalism mavi marmara nationalization psycology sex spy taxes yuan ALCASA ANC Airbus Amazon Ariel Sharon Australia Batista Bettencourt Big Bang Big Mac Bill Gates Bin Laden Blackstone Blogger Boeing COMEX Capriles Charlie Hebdo Clinton Cocoa DSK Desalination Durban EADS Ecopetrol Elkann Entrepreneur FIAT FTSE Fannie Freddie Funds GE Hayek Helicopters Higgs Boson Hitler Huntsman Ice Cream Intel Izarra KKR Keynes Khodorskovsky Krugman LBO LSE Lex Mac Malawi Maps MasterCharts MasterFeeds MasterLiving MasterMetals MasterTech Microsoft Miliband Monarchy Moon Mossad Mugabe NYSE Namibia Nestle OWS OccupyWallStreet Oman PPP Pemex Perry Philippines Post Office Private Equity Property Putin QE Rio de Janeiro Rwanda Sephardim Shimon Peres Stuxnet TMX Tennis UAV UNHRC VALE Volcker WTC WWII Wimbledon World Bank World Cup ZIRP Zapatero airlines babies citibank culture ethics foreclosures happiness history iPhone infrastructure internet jobs kissinger lahde laptops lawyers leadership lithium markets miami microfinance pharmaceuticals real estate religion startup stock exchanges strippers subprime taliban temasek ubs universities weddimg zerohedge

Subscribe via email

Enter your email address:

Delivered by FeedBurner

AddThis

MasterStats