Trojan Horse argument falls at first fence
OKAY, I HAVE been told before that in this business, dog does not eat dog and when Bloomberg tells me that the opinions of its columnist, William Pesek, are his own, I would restrain myself were it not that Bloomberg sponsors these opinions and carries them round the world.
Mr Pesek's theme in his latest column (Hong Kong Is Trojan Horse for China Currency, September 24) is that our exchange rate link to the US dollar has had its day, that it should have been abandoned long ago, that it is in big trouble now and that it is likely to be dropped even before the yuan is revalued, which he seems to take as an imminent certainty.
Now, if I remember correctly, the Trojan Horse was a wheeled wooden structure in which some Greek thugs taking one side of a marital dispute hid themselves to sneak through the gates of a city that had taken the other side of that dispute. They succeeded and Troy's inhabitants were murdered.
But Hong Kong is China's gateway, not any wooden horse that is meant to go through it. If there is a Trojan Horse here, it is more likely to be Bloomberg trying to induce our gatekeepers on Lower Albert Road to open a way for a breakthrough into China by American marketeers. I hear a rattle from inside that horse, however, something that tells it was not crafted quite as carefully as it should have been. Mr Pesek does not seem to have distinguished sufficiently between devaluation and revaluation. For instance, in predicting a weaker Hong Kong dollar, he cites the pressure on the peg in the market this week as grounds to argue that it 'should - and will - be scrapped before Beijing lets markets decide the yuan's value'.
Ah yes, Mr Pesek, but that pressure was for a stronger, not weaker, Hong Kong dollar.
I know that 7.75 is a lower number than 7.8, the official peg rate to the US dollar, but, when you look at it this way, look at it upside down.
A rate of 7.75 on the market says that you can buy a US dollar with HK$7.75, which is less than $7.80 and says that the US dollar now comes cheaper. In other words, that US dollar is weaker and the Hong Kong dollar is stronger. Simple arithmetic, really.
I also know this is at odds with past experience, when most people would have expected a weaker Hong Kong dollar if the peg were removed. But there you go. Money talks and what it talks in volume now is currency strength here.
Likewise, you seem to forget something in praising the idea that Hong Kong scrap its peg to the US dollar in favour of one to the yuan - 'It makes sense when you consider that about 90 per cent of the city's exported goods are made elsewhere, mostly in China, and pass through Hong Kong en route to buyers'.
Your countrymen are all calling for a stronger yuan and it seems likely the yuan would indeed strengthen if exchange rate controls on it were lifted. In that case, however, the Hong Kong dollar would also strengthen, not weaken as you predict. Simple logic, is it not?
But these exports are in any case no reason for linkage to the yuan. When you look up China's official figures on exports, you see them quoted in US dollars and must hunt and peck for the yuan equivalents.
This is understandable. They are quoted in US dollars because they are priced in US dollars. The US dollar is the currency of international trade. If we want to denominate the peg in the currency of our exports, then the one we have now is the one we need. Nor do I quite see, Mr Pesek, how it follows that you think a weaker Hong Kong dollar makes sense for us because 'it seems a no-brainer at a time when governments around the world, especially in Asia, are devaluing currencies to boost exports'.
Leave alone that most Asian currencies are strengthening against the US dollar at the moment and have been for at least two years, does it not seem a little odd to your way of thinking that China, a country which did not devalue its currency in the Asian financial crisis six years ago, was the one that subsequently scooped the rest of Asia on share of exports from the region?
Similarly, how does it happen under your scenarios that the Philippines, the country with the weakest currency of the region at the moment, should also have the lowest export growth? In my opinion, the argument you present does indeed seem a 'no-brainer'.
Pardon me, therefore, if I have a different idea of where to look for my Trojan Horse. It is not too difficult when the people inside leave the hatch open.
