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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Paul Berliner who wrote (5668)	8/19/1998 4:12:00 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 9980

Paul, I would just add the "confidence" factor and the relative growth of money supply in each country relative to the growth of their respective economies. Countries that print the stuff with abandon are subject to debasement of their currencies. The US currency, despite a strong growth in M3 is currently the "international currency" with many economies having segments within them operating completely on a dollar basis (for instance, real estate in some countries are quoted in US dollars, not the local country's currency). About half a trillion of our money supply (paper dollars) is actually used in such "underground economies" (an interest free loan worth about 25 Billions per year to us). Until foreigner start to lose their faith or confidence in our dollar, the dollar will stay strong. In principle, with our balance of payments starting to deteriorate, the dollar should start to weaken, but the balance of payment, is not the only factor, we have high interest rates as well as the confidence factor supporting our currency (and thus weakening other currencies). Zeev

To: Paul Berliner who wrote (5668)	8/19/1998 6:10:00 PM
From: Frodo Baxter	Read Replies (1) \| Respond to of 9980

Your statements are completely wrong. The HK dollar is not pegged, it's fixed. There's a difference. The reason pegged systems don't work is that those governments are trying to do two things at once: A) Print lots of money and B) Keep the dollar exchange rate steady. forbes.com

To: Paul Berliner who wrote (5668)	8/20/1998 10:34:00 AM
From: Ron Bower	Read Replies (1) \| Respond to of 9980

Paul & others, I have appreciated the discussion on currencies that my question prompted, but the resultant posts make it even more confusing. You have doubted that the HKMA has enough foreign exchange reserves to cover the $HK in circulation. I think both the amount they hold and the dollars in circulation are definite numbers and not disputable, including the 60% they hold in $US. With the 'assumption' that they have an excess, would not the actual value of the $HK be greater than the pegged value? I don't see how you can use arguments that apply to free floating currencies to the $HK. I understand that Governments influence the value of their currency by buying/selling or by simply printing more to influence their economy, but this doesn't seem to be the situation in HK. The HKMA is acting to influence the Hang Seng activities because the automatic policies of the HKMA (higher interest rates) are influencing the markets, but, as I understand it, the HKMA is prohibited from actively trading $HK. I agree that, with the increased strength of the $US, economic conditions in HK make it unreasonable for the $HK to also increase, but- if they hold sufficient $US and other currencies to back the peg, it's value HAS increased just as a currency backed by gold would have devalued in the past year. As I see it, economic conditions in the US influence the $HK, not economic conditions in HK. IMO - and I am likely wrong on this, the hedge funds are trying to break the peg because they feel they can. Once broken, the hedge funds will then have control over the $HK instead of the HKMA. Control of the $HK results in control of the HK economy. Control of the economy would defeat what little autonomy HK has in it's relationship with China. The HKMA's activities are much more important to HK than simply holding the peg. Thanks to all for a great discussion on currencies, even though the discussion resulted in so much conflicting opinion and information. Ron

To: Paul Berliner who wrote (5668)	8/20/1998 11:48:00 AM
From: Robert Douglas	Read Replies (1) \| Respond to of 9980

Paul, I'm a bit puzzled by a statement you made in your primer on currencies. You made this statement on reasons why the Hong Kong dollar is overvalued. 2. A devaluation would benefit HK because domestic goods prices there are way too high. Don't you have that backwards? Domestic goods would certainly not get cheaper if the $HK fell, just as goods produced in the US have not become more expensive to Americans with the appreciation in the dollar. If anything domestically produced goods would become more expensive for Hong Kong residents since Hong Kong imports so many of the raw materials that are used for these products that are produced and consumed locally. This is one reason that I predict that HK will not devalue, because the net benefit would be small due to the reliance on imported raw materials. Perhaps you meant to say that their exports would be cheaper because of the cheaper currency? This is certainly true, but would the resulting inflation and possible loss of Hong Kong's status as financial capital of Asia be worth it? I believe that Hong Kong values this financial stability more than it values a "quick fix" boost in exports. So while I believe Hong Kong is suffering, they will hold on, and since I believe the next move for the $US is down I think that relief is on the way. Side bet. You are on record saying that Hong Kong, Taiwan and Argentina will all devalue. I'll take the other side of each of those bets. How does one cyber-lunch at the SI bar and grill sound? <G> -Robert