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Monitor | A peg to the yuan would not solve Hong Kong's property problem

A link to a non-convertible currency will bring little benefit to the city, and may even result in money flooding in or flowing out

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When people look for the cause of Hong Kong's property market ills, they often point to the city's currency peg to the US dollar.

Because of the peg Hong Kong automatically imports US interest rates, which at a whisker above zero are far too low for the city's relatively vigorous economy, they argue.

The result is a ballooning local property market, which has seen home prices double in four years, with the typical flat now costing 13.5 years of median household income.

To some critics the obvious answer is to ditch the link to the US currency and instead peg the Hong Kong dollar to the yuan.

In response, peg enthusiasts argue that a link to the yuan would be unworkable. However, their main argument - that the Hong Kong Monetary Authority wouldn't be able to intervene in the market to keep the Hong Kong dollar in its permitted band because the yuan isn't freely convertible - is complete nonsense.

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