Hong Kong urged to review dollar peg and consider linking with RMB, might be better served by adopting a flexible exchange rate regime Forcing Hong Kong to import monetary policy from the US – now at ultra-loose settings – the peg has in recent years contributed to soaring inflation and property prices.
Mr Yam, who retired from the HKMA, argues that breaking the peg system would allow Hong Kong policy makers to set monetary policy and tackle inflation. But he stressed that the government could equally argue that the risks of depegging the currency would be too great.
Hong Kong urged to review dollar peg
By Robert Cookson and Enid Tsui in Hong Kong
Hong Kong should review its peg to the US dollar and consider linking to the renminbi, according to Joseph Yam, former head of the Hong Kong Monetary Authority.
Mr Yam, who waged war against George Soros and other speculators to protect the peg during the Asian financial crisis, said Hong Kong might be better served by adopting a flexible exchange rate regime.“Nothing is absolute or sacrosanct,” said Mr Yam, who ran the HKMA for 16 years until he retired in 2009.
Mr Yam added that the HKMA’s desire to maintain the peg was an “obsession or even paranoid”.
Responding to Mr Yam, John Tsang, Hong Kong financial secretary, said on Thursday: “Let me reiterate in no uncertain terms, I see no need and we have no intention to change the currency peg.”
Mr Yam, 64, was an employee at the HKMA in October 1983 when Hong Kong, then a British colony, adopted a currency board mechanism to put an end to destabilising foreign exchange volatility.
Economists say the mechanism that links the Hong Kong and US currencies at a rate of HK$7.80 to one greenback has served the city well since its introduction 28 years ago, surviving repeated attacks from speculators.
By pegging to the US dollar, the currency used for the vast majority of international trade and investment, Hong Kong has attracted international business and minimised the risk of foreign exchange volatility.
But by forcing Hong Kong to import monetary policy from the US – now at ultra-loose settings – the peg has in recent years contributed to soaring inflation and property prices.
Mr Yam, who retired from the HKMA, argues that breaking the peg system would allow Hong Kong policy makers to set monetary policy and tackle inflation. But he stressed that the government could equally argue that the risks of depegging the currency would be too great.
An adviser to the mainland Chinese central bank, Mr Yam said that if Hong Kong maintains a peg, the question was whether “in the fullness of time” the anchor should be the renminbi rather than the US dollar.
The former HKMA chief, who was once the world’s highest paid central banker, said he had not discussed his position with Hong Kong policy makers. But he acknowledged that the market would be sensitive to the fact that he had openly raised the issue, given his past role.
Both Leung Chun-ying, the incoming Hong Kong chief executive, and Norman Chan, the current HKMA chief, have both stressed that the dollar peg remains the best option for Hong Kong. Mr Chan has said the government has “no intention” of changing the system.
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