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

To: Paul Berliner who wrote (5674)	8/19/1998 7:45:00 PM
From: Frodo Baxter	Read Replies (1) \| Respond to of 9980

>The big hedge funds here - Tiger, Global, Quantum and others can smash the HK peg very easily. Why do you think that the HKMA is finally starting to bitch about the attacks? Zzz. If they can smash the peg, why don't they? And as I recall, the HKMA didn't exactly bitch. They squeezed the shorts. >They've burned over 20% of foreign reserves recently defending this so-called mighty currency that you claim doesn't need defending. Yeah whatever. I've spent over .001% of my brain reserves arguing with people who make up facts. The WSJ estimates the stock market intervention at $387 million... or about .43% of their reserves. >Anyway, the article doesn't clarify what you mean by the $HK being fixed & not pegged. To myself and every fncl. journalist out there, (from what I've read) it seems like a peg. I don't see where Henke differentiates. The definition of a peg is that the currency is a fixed rate of exchange that is overseen by the gov. You must not read very broadly then. >That's the case in HK and ARG. The peg has got to be fixed to something - the $US, the EURO, whatever. By you using the term "fixed" I don't see any difference than in the word "peg". Also, to say that the HKMA doesn't make any monetary policy is silly, because their recent actions contradict the premise of his article. The HKMA doesn't make monetary policy because they don't print money that isn't backed up by reserves. Get it? No, I guess not. Okay. In the olden days, every dollar in circulation was backed up by gold, $35 per ounce. In other words, any time I wanted to, I can go to Uncle Sam with my money, and demand its gold equivalent. This is a fixed system. Such is the case with Hong Kong. You can always exchange your HK$ for American dollars and the exchange rate is completely fixed and fully reserved. We went off the gold standard, but that was an active choice, not an eventuality foisted on by speculators. So too may Hong Kong one day scrap their current system, but not because of speculators. Now imagine this same system where the government promises an ounce of gold for $35, but doesn't actually have any gold. Also imagine that this government prints money like mad. This is the pegged system as practiced by governments that devalue. Speculators (if they are smart) notice this before anybody else, and reap the windfall when the government devalues. But they rely on the same fundamental that we must all abide by: you can't have your cake and eat it too.

To: Paul Berliner who wrote (5674)	8/20/1998 12:03:00 AM
From: DLS	Respond to of 9980

I would be interested in opinions about how long HK can keep buying stocks and money and what the outcome will likely be. Thank you dls

To: Paul Berliner who wrote (5674)	8/20/1998 1:05:00 AM
From: Chip McVickar	Read Replies (1) \| Respond to of 9980

Paul, I am not an expert, but I believe there is a structural difference between a pegged currency and a fixed currency. Russia has a pegged currency that is fixed to a single currency (US$) and can be altered by the government at will. It is subject to political and other kinds of manipulation. Russia just expanded its pegged exchange rate a subtle form of devaluation. Pegged currencies are esentially publicly stated exchange rates. Currency boards as Hanke states cannot be manipulated by national interests, political interests or manipulated by currency traders for anyones personal interests. However, the basis of confidence (outside of the currency) remains on the ability of the country to maintain responsible economic polocies... such as debt ratios to GDP. With the currency boards of Argentina and H.K. these are set-up outside of and apart from any ability for anyone to change or manipulate the structure. Although I believe the full legislatures can vote to legally overturn the use of a currency board. The big arguments, surround wheither these boards should be fixed to gold, to a single curriency or a basket of currencies and/or commodities to gain the greatest degree of confidence. Further more....I believe that H.K. will not devalue as this will destroy all that the country has built itself on. But other fundamental economic factors can bring down the country and the worlds confidence in its ability to prosper and be competitive in world currency markets. Certainly the US dollar has faced such speculation not so long ago. But if the H.K. realestate market follows Japan then the historical confidence given to H.K. maybe broken. Chip

To: Paul Berliner who wrote (5674)	8/20/1998 7:46:00 AM
From: Chip McVickar	Read Replies (1) \| Respond to of 9980

Paul and Thread There are 2 excellant artiles in the Wall Street Journal 20th Aug p.A14 That attend to these very subjects being discussed here. Unfortunately I do not have a link. Perhaps someone else will..? One is by Mr. Joesph Yam chief executive of the Hong Kong Monetary Authority essentially the currency board. The other is by Judy Shelton author of "Money Meltdown". The article is entitled "Russia Needs a New Currency". In that article she says: "Under a currency board arrangement, governments lose the ability to excercise discretionary monetary polocy. Money issued by a currency board is backed 100% by reserves of foreign currency and gold. The exchange rate between the national money and the reserve currency does not gyrate according to the fickle sentiments of investors or jawboning by government officials, but is guarrenteed by law....The hallmark of a currency board is that it works automatically; the national money supply expands or contracts through the inflow or outflow of reserves." She goes on to explan the IMF's reluctance to use currency boards, "Such monitary straightforwardness makes the IMF bureaucrats uneasy. They are inclined to use the value of moneyas a tool for manipulating financial incentives and human behavior...." It is an excellant article Below this article, Mr. Yam makes these statements: "...speculators [in future markets] have manipulated our currency-board system in order to reep hudge profits in stock index futures. We have no objection to anyone, including hedge funds, taking short positions in stock index futures, so long as they are reacting to economic realities... Furthermore, the actions of currency speculators can be blamed for a significant part of the interest rate premium in the Hong Kong dollar over the U.S. dollar." He goes on to explan that situation....well worth the read. Chip