Hong Kong Sar Monetary And Exchange Rate Challenges

Hong Kong SAR is now highly unusual as a large economy running a currency board system that pegs the Hong Kong Dollar to the US Dollar. This volume explores the origins and persistence of this system, presenting the viewpoint of several of the main protagonists in the operation of the currency board since 1983 as well as new research by academics.

Since 1983 Hong Kong has pegged its currency to the US dollar through a currency board system that is unique among the world's advanced economies. In this first comprehensive book about Hong Kong's monetary system, Tony Latter draws on his considerable experience in central banking generally, and with the Hong Kong Monetary Authority in particular, to give a detailed account of how the system operates; why it was introduced; what are the important differences from other monetary regimes; and how it has performed. After a brief overview of Hong Kong's currency board system, two chapters explain the key features of mainstream monetary policy as practised in most economies and how the currency board differs. Then three chapters deal with the history of money in Hong Kong from the mid-1930s, describing the salient events and changes of the period up to the 1983 crisis and the consequent re-adoption of the currency board. Descriptions of the functioning of the system after 1983 and its evolution to the present day then follow. The book concludes with assessments of the performance of the currency board since 1983 and of the Hong Kong economy more widely. This book is designed both to inform lay readers and to provide substance for monetary economists. Given the key role of monetary policy in providing a stable foundation for a strong economy, the book is of importance for all business people in Hong Kong, while the more analytical sections provide essential reading for all students of economics.

The dramatic handover of Hong Kong to the People's Republic of China on July 1, 1997, amid much tension and speculation, closes one significant colonial chapter in Asia. At the same time, it also sets the stage for new political and economic possibilities with China closely involved with a key financial center in Asia. Hong Kong in China comprises a collection of papers evaluating the situation in Hong Kong SAR over the last two years. The handing over of Hong Kong to China presents a challenge to the legal system which is intrinsically and delicately linked to the political vision of one country, two systems. While politicians and legalists seek to work out the model, the people of Hong Kong confront the dilemma of an identity crisis, on top of the contentious social problems presented by the immigration of Chinese mainlanders.

The Asian crisis of 1997-1998 was a major influence on macroeconomic thinking concerning exchange rate regimes, the functioning of international institutions, such as the IMF and the World Bank, and international contagion of macroeconomic instability from one country to another. Exchange Rate Regimes and Macroeconomic Stability offers perspectives on these issues from the viewpoints of two Nobel Laureates, an IMF economist, and Asian economists. This book contributes new ideas to the ongoing debate on the role of domestic monetary authorities and international institutions in reducing the likelihood of international financial crises, as well as the problems associated with various exchange rate regimes from the standpoint of macroeconomic stability. Overall, the chapters contained in this volume offer interesting perspectives, which have been stimulated by the recent events in the foreign exchange market. They provide a useful reference for anyone interested in the development of exchange rate regimes, and represent considerable reflection by economists half a century after Bretton Woods.

Hong Kong's reunification with China on July 1, 1997 after 156 years of British rule was a historic event of worldwide significance. While the transition to Chinese sovereignty has so far been smoother than expected, there are lingering doubts concerning three interrelated issues: whether the Hong Kong dollar can continue to exist, whether the linked exchange rate can survive and whether Hong Kong can retain its role as an international financial centre. These issues are analyzed and discussed objectively in the first article of this book.The second article confines itself to the workings of the currency board. In addition, the future of the system after Hong Kong's historic reunification with China is briefly discussed.

This Selected Issues paper analyzes Hong Kong Special Administrative Region (SAR) banks’ exposure to nonbanking businesses in Mainland China. Hong Kong SAR banks are generally less exposed to riskier Mainland businesses. Despite that, a sharp deterioration in the balance sheet of Mainland businesses, as well as a sharper-than-expected downturn in the Mainland economy could negatively affect Hong Kong SAR banks, raising debt at risk well above suggested estimates. As Hong Kong SAR banks generally have sizable buffers against downside risks, the best approach to such a scenario is vigilance, including maintaining high origination and underwriting standards.

This Selected Issues paper analyzes the long-term fiscal policy in Hong Kong Special Administrative Region (SAR) and the anticipated structural changes in the economy. The paper examines the factors that contributed to the stability of the banking system in Hong Kong SAR by assessing the roles played by banks, equity markets, and debt markets. The study describes a procedure to extract the probability distribution of future exchange rate movements based on currency option data. The paper also provides a statistical appendix report of the country.