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

To: Zeev Hed who wrote (5719)	8/20/1998 12:58:00 PM
From: Bosco	Respond to of 9980

Dear Zeev - yes, I remember CTYS [and indeed it is one of the rare moments I ve heeded to your warnings - I am still trying hard to listen to you more often, but this old dog tends to be a stupid & stubborn one <VBG>.] Regarding the HK flu, I think the peg will eventually be lifted, not so coincidentally when it is fully absorbed by the PRC [um, the PRC is the borg <g>] - but no sooner. As the proxy of the PRC, financially and imagewise, I hesitate to believe any de-peg any time soon. Historically the PRC is not about to backdown. Despite my hard feelings about its treatment to the minorities, to HK before the changeover and to Taiwan, it is not a banana republic like certain other SE Asian countries <G>. Understandably, asset base is a major factor in the long run; however, it is still debatable if the current malaise is protracted [like that of the japanese economy.] Also, HK thus far has not deployed everything in its arsenal against the malaise yet. In sum, I can see several problems with the HK economy. Tourism is down, several big public sector projects [like the airport and the transport infrastructures] are completed and RE values have corrected for an average of 50% [roughly.] The positives are its importance as the gateway to China [real or perceptual,] the historical savviness of its people and the stakes assumed by other countries. To use its history as an ancedote. 1967 [riot] and 1989 [Tiananmen] are a very good year for those who stuck around. My guess [or wishful thinking?] is that so is 1998. [note: I hold no position in anything remotely related to HK, except maybe some residual emotional tie.] best, Bosco

To: Zeev Hed who wrote (5719)	8/20/1998 9:15:00 PM
From: Chip McVickar	Read Replies (1) \| Respond to of 9980

Zev, With respect, I have to say I believe there is a subltle but important difference between a pegged currency and employing a currency-board. I've looked for a definition of a 'currency-board' but none was found. However in Judy Shelton's WSJ article in 20 Aug p.A14 she offerred this interpretation....which I believe is in use by H.K. and Argentina. "Under a currency-board arrangement, governments lose the ability to excersise discretionary monetary policy....The exchange rate between the national money and the reserve of foreign currency does not gyrate according to the fickle sentiments of investors or jawboning efforts by government officials, but is guaranteed by law....The hallmark of a currency-board is that it works automatically..." It essentially deprives currency traders of an open playground. In the article she quots Soros as saying, "...the only way to end the destablizing impact of currency speculation is to take the profit out of it." Hong Kong has also stated on the same page, that it intervened in local stock and futures markets to take the profit away from direct currency manipulation by the hedge-fund traders.[Mr. Yam's article] A pegged currency is not a binding legal system, it can be altered easily by the jawboning of polticians influence...as what just recently occurred in Russia and by hedge-fund traders on the open market. Pegged currencies are essentially publically stated bands of exchange rates that are not fixed by law. This makes them easily manipulated by any group for personal interests. I believe it requires a significant legislative act to cancel the currency-board authority. However, the basis of confidence remains on the ability of the country to maintain an orderly economic system, such as debt ratios to GDP...etc. Atleast in Russia's case the currency board would give some inherant structure to the international money and reduce speculation. It is not a cure for internal corruption. Other arguments surround the use of baskets of commodities and/or gold to anchor the boards currency rather then a single currency that floats. I do not believe H.K. can easily adjust this currency-board as you have suggested. It would, I believe require a full legislative vote that would not be easily won after many years of success as the basis for "the freest economy in the world." Chip