Hi Elmat, <<HK is the last dollar peg standing. Will still be so? For how long?>>
This earlier response to David is still operative …
Message 16217890
“August 16th, 2001
Hi David, <<Do you expect the HK dollar to be delinked from the US Dollar?>>
I do not expect any delinking of HKD from USD. HKD and Chinese Yuan will devalue alongside the USD, keeping it company. Having said that, I naturally and normally keep only enough HKD on hand to pay personal and business bills, as this discipline saves me a potential panic trip to the bank should the HK government's promise be debased while I am inconveniently out on a trip”
HK economy is a service economy (finance, logistics, re-export, infrastructure construction design/management), and is not competitive in cost to its immediate service oriented neighbors (Singapore/Shanghai), but we are much better in political and economic freedom, taxation, law, application of law, infrastructure when compared against Singapore and Shanghai. We are all of the above and also more cost (whoopee!) competitive than Tokyo.
We are happily ensconced within and dominate a natural economic territory that includes IndoChina and Southern China, and these provide a floor to how low HK can sink. Very low floor, but a floor.
For every 7.8 HKD in circulation, there is at least 1.0 USD in reserve, and so, as long as the politicians deem advisable, the hard peg will hold, to the detriment and depreciation of HK asset prices, employment and compensation, as denominated in HKD/USD.
Should the politicians de-peg the peg, they will then either have to re-peg at some equally arbitrary level, and respond to questions that have no answers, and try to defend the new peg level in face of popular outcry and international speculation; or decide to float the HKD, in which case the HKD will likely disappear, as all of HK will simply switch to the USD (since most folks have oodles of USD savings anyway).
At this time, the HKD annualized fixed deposit rate is less than the comparable USD rate, and there is no pressure for de-pegging. I suppose one reason for the lack of pressure is that folks broadly are expecting the USD to devalue, and HKD with it.
In China, the black market RMB (Chinese currency) is actually rising against the USD. I expect the mainland authorities to keep issuing notes and building infrastructure to keep the RMB to USD peg at current level, unless Japan Yen goes to 140 and stays there, in which case watch for RMB devaluation talk from the powers that be, possibly see the HKD (along side the RMB) devalue against the USD, SE Asia disappear, and Jay’s ownership of Thai beach land drastically increase.
Bottom line, I have no absolute answers, only relational guesses, but I am ready, as always.
Chugs, Jay |
