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  • Jul 31, 2014
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Hong Kong dollar should link to basket, says Stiglitz

Nobel laureate says move will safeguard city as trading hub while other units gain dominance

PUBLISHED : Tuesday, 19 November, 2013, 2:52am
UPDATED : Tuesday, 19 November, 2013, 2:52am

Hong Kong should consider pegging the Hong Kong dollar to a wider basket of currencies to better safeguard its status as a trading hub, says Nobel laureate Joseph Stiglitz, who also advocates a new global reserve currency to replace the US dollar.

While Hong Kong had been "remarkably successful in maintaining the currency peg for 30 years", the growing dominance of the yuan and other regional currencies could be "problematic" for the city, the former World Bank chief economist said at a talk on the global financial crisis at the Chinese University of Hong Kong yesterday.

"At the moment, the US dollar is going down, which strengthens Hong Kong's exports." But what if the dollar rebounded, he asked.

Stiglitz, who in 2009 chaired a United Nations commission on the feasibility of establishing a global reserve currency, also questioned China's persistence with buying United States debt, why it wanted to hold "a wasting asset yielding negative interest rates". A global reserve currency might help alleviate some of these issues but despite strong support from China, Russia and France, the ideas proposed by his committee were shot down by the US, he said.

A long-term critic of self-regulation and unfettered markets, Stiglitz dismissed many of the more popular free-market theories as "ideologically driven" and subsequently discredited by the 2008 financial crisis.

In his writings, he has been especially critical of what he calls "asymmetric globalisation" and "excessive financialisation", whereby governments compete in a race to the bottom to offer tax rebates and loose labour laws to global corporates while those same firms reward top executives with ever-higher pay packages.

Shareholders should have a greater say on corporate pay, Stiglitz said, adding that in the US the pay difference between a chief executive and an average worker was 250:1.

Instead, he advocates a more robust interventionist approach. "You need a market economy but with rules."

During a visit in 2011, Stiglitz lent his weight to the establishment of a minimum wage in Hong Kong, calling it an "important part of making a market economy work well".

Seen in the US as politically left, Stiglitz's opposition to the austerity-focused policies of Western governments has been driven by his preference for a Keynesian approach of stimulating demand to kick-start recovery. Instead, governments have cut spending and embarked on monetary support by slashing interest rates and buying bonds.

Stiglitz said the one positive to come out of the crash had been a resurgence in new economic theories and "less hubris", with the hope that new ideas would lead to better policies.

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In addition to printing money like crazy, the United States should also use expansionary fiscal policy to stimulate demand and kick-start recovery, say by building high-speed trains, repairing old bridges and roads or building new ones.
How about the budget deficit?
'The US debt bubble may burst one day,' said Obama, 'but probably not in my lifetime.'
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If the US dollar greatly rebounds, under the present linked exchange rate system, Hong Kong has to undergo severe internal devaluation, as in 1998-2003, to restore her external competitiveness.
It can be argued that Hong Kong's recent world-class competitiveness can be traced to the painful 1998-2003 adjustment period. (Other Asian economies simply depreciated their currencies to recovery.)
China's debt market isn't big and deep enough right now. Where is the free-market yield curve? As is said by the Exchange Fund, China's debt market can't provide enough investment products for Hong Kong's reserve currency managers to buy.
 
 
 
 
 

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