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Rigging the HK$ to the yuan can be done, but it's a bad idea

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Hong Kong is likely to ditch its currency peg to the US dollar within two years in favour of a link to the yuan, according to Peter Redward, head of emerging Asia research at Barclays.

Bloomberg, October 26

Be it according to Peter or Paul, or from Barclays or Barings, we have the-peg-is-gone rumours swirling around us again. It happens regularly and in recent years has always featured the yuan as a substitute currency for the US dollar.

The stimulus this time is the growth of yuan deposits in Hong Kong and the strains of a property market pushed to overheating by low interest rates because the peg has forced us to keep our rates low in line with rates in the United States.

Can it be done? Can we abandon our currency board link to the US dollar and fix the Hong Kong dollar to the yuan instead?

There is an easy answer to this question. Of course it can be done.

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