Back in the days of excessive leverage, the Hong Kong dollar emerged as the favourite funding currency for carry trades. Plentiful liquidity in Hong Kong's banking system meant that for much of the first half of this year interbank interest rates in Hong Kong traded at 2 per cent or below.

This encouraged opportunist investors like hedge funds to borrow Hong Kong dollars and sell them for currencies bearing higher interest rates like the Australian dollar, which yielded 8 per cent or more.

The trade appeared a doddle. Not only did investors capture a fat yield spread, they also gained from the rapid appreciation of the Australian dollar, which was driven in part by the commodity market frenzy.

Now everything has reversed. Australia is cutting interest rates, the commodity bubble has burst, and the Aussie dollar is in free fall, inflicting heavy losses on carry traders. At the same time, hedge funds are facing simultaneous margin calls and redemptions which are forcing them to liquidate their positions.

The result is heavy demand to buy Hong Kong dollars to close out carry trades funded by borrowing in the local currency. The Hong Kong dollar has shot up to the strong side of its band, and the HKMA has stepped in with massive sales.

These are effectively liquidity injections, which have pushed the aggregate balance - a measure of funds in the Hong Kong interbank market - to record levels (see the chart below). But far from being under threat, Hong Kong's exchange rate mechanism is working exactly as intended.

One thought does stick out, however. If the HKMA had not introduced its two-way convertibility undertaking in May 2005, promising to sell the Hong Kong dollar should it hit the strong side of the trading band, our currency would now be soaring to stratospheric heights, undermining the city's competitiveness and causing yet another headache at a time of intense economic pain.

Maybe HKMA boss Joseph Yam Chi-kwong's astronomical salary is not wholly undeserved after all.

Speaking of salaries, there has been a lot of comment recently about 'cultural differences' between how Asian companies and US or European companies are responding to the slump.

With cost cuts imperative, western companies typically choose to wield the axe, laying off large numbers of staff in swingeing job cuts.

Asian companies, meanwhile, tend to look for more innovative ways of reducing their cost base. Typically, they might offer unpaid leave, provide training on half-pay, or get staff to agree to salary cuts in order to 'spread the burden'.

The contrast is indeed down to cultural differences, but perhaps not quite in the way most people think.

Paradoxically, sacking white-collar staff to cut costs can be an extremely expensive undertaking. Once outplacement consultants have been retained, severance packages assembled and post-redundancy job search assistance paid for, the average cost per employee laid off can easily reach tens of thousands of US dollars.

For the management of publicly listed western companies, with their focus on quarterly reporting and short-term share price movements, the temptation is to get rid of people as soon as possible, pay the price, and depress earnings in what was going to be a lousy quarter anyway.

With the costs out of the way, the benefits should show up as an immediate bounce in the next quarter's results, allowing management to claim their strategy is working.

Asian companies tend to see things differently. They typically answer to just one controlling shareholder, who has much less of a focus on short-term results. Thus, it makes more sense to smooth out the effect of cost cutting over time.

So, for example, managers will take advantage of the depressed job market by pushing employees to accept pay cuts, which allows the company to continue offering clients the same service, but at reduced cost.

The differences are indeed cultural. But they have far less to do with the contrast between western individualism and Asian communalism, than with different models of corporate governance.