Jake's View | Our peg works and should be kept but it mightn't be
Future of mechanism uncertain if we hit difficult times and popular choice is for change
The Hong Kong dollar's peg to the US dollar could easily be in place for the next 20 years with a potential switch to the yuan an unlikely prospect, according to John Greenwood, the economist who designed the currency board system that marks its 30th anniversary this week.
With the boss having decided to give this 30th anniversary some extra coverage, I may as well throw in my two cents' worth of recollections about the establishment of the peg.
One clear memory I still have of that week, when the Hong Kong dollar was plummeting ever faster on foreign exchange markets, was a report in this newspaper of some local punters rejoicing that the value of their local gold holdings in Hong Kong dollars per tael was rising so fast. They had stumbled on an excellent currency hedge. This place is a town of optimists, always.
The big appeal of the peg that John Greenwood devised was that it was such a simple mechanism.
The government would (in effect) print Hong Kong dollars out of thin air at HK$7.80 to US$1 for any bank that asked for the exchange. If that bank then wanted to sell its Hong Kong dollars again, it would get the same HK$7.80 rate and the government would tear up the Hong Kong dollars.