China must keep US link
Sunday 29 June 1997
"One country, two systems is one notion," said Rupert Byng, head of equity sales in the London office of Sassoon Securities, a Singapore-based stockbroker. He was referring to the 1984 agreement, called the Joint Declaration, in which China agreed to let Hong Kong keep its economic and political systems separate for 50 years. "But one country, two currencies? It's a key crucial question."
The Hong Kong dollar has been pegged at 7.8 to the US dollar since 1984, meaning that for every HK$7.8 in circulation there is US$1 in reserve to support it. Hong Kong's monetary authority keeps the reserves in a war chest called the Exchange Fund - a kitty with $63bn at the end of February.
With that size cushion, Hong Kong can easily defend its currency against a major depreciation, such as it did in early 1995 when speculators tried to break the peg. But, asks Mr Byng, would the territory's new masters do the same?
"One of the most attractive things about taking Hong Kong is inheriting those reserves. Will they want to spend the dollars to defend a currency that is not their own?" he said. If the Hong Kong-US dollar link broke, the territory's currency's value would plummet "and you would see the market really collapse".
If the Hong Kong dollar's value plummeted, the monetary authority would raise interest rates to support the currency. This would depress property prices and in turn devastate the stock market because companies invest heavily in real estate.
Ashok Shah, fund manager at Old Mutual Asset Management, said China's promise to keep the Hong Kong dollar in place is "too daunting a political commitment" to even think about breaking.
The mainland needs billions of development dollars in the coming years, a good chunk of which could be raised in Hong Kong dollars.
"Why should China make it difficult to borrow in a currency it needs? It's to its advantage to exploit the link," he said.
- 1 Should Apple buy Greece?
- 2 Michael Douglas regrets 'embarrassing' Catherine Zeta-Jones with oral sex comments
- 3 Drummer Lee Rigby's family reject 'extremist' groups using Woolwich murder for political gain
- 4 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
Michael Douglas regrets 'embarrassing' Catherine Zeta-Jones with oral sex comments
Drummer Lee Rigby's family reject 'extremist' groups using Woolwich murder for political gain
Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
Dutch city of Utrecht to experiment with a universal, unconditional 'basic income'
Tunisia hotel shooting video: Dramatic footage appears to show gunman Seifeddine Rezgui running on Sousse beach
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Austerity is essential if Britain wants to reduce inequality – why can't the left-wingers who march against it realise this?
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Extend Right To Buy to tenants of private landlords, Labour's Jeremy Corbyn says
David Cameron struck double blow in his hopes to win Britain a new EU deal
iJobs Money & Business
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Negotiable: Recruitment Genius: This extremely successful and well-established...
Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...
Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...