Hong Kong not gaining from peg | South China Morning Post
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  • Jan 22, 2015
  • Updated: 7:11am
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Hong Kong not gaining from peg

PUBLISHED : Monday, 06 May, 2013, 12:00am
UPDATED : Monday, 06 May, 2013, 2:55am

The Hong Kong dollar is pegged to the US dollar by a currency board.

This obsolete arrangement is also used by other economies such as Bermuda, Antigua and Barbuda, and the Cayman Islands.

The peg increases inflation, due to our inability to adjust the upward strength of the Hong Kong dollar. Whatever labour productivity gains are made by our hard-working middle class are not reflected in a stronger dollar as the Hong Kong Monetary Authority immediately pushes down the dollar to keep the peg within the required range, thus reducing our purchasing power. Salary increments do not catch up with other relative price increases.

This situation is further exacerbated by the fact that much of imported inflation is due to hot money coming into the SAR.

It is used to invest in property and mainland shares and spending by mainland tourists raise prices.

This influx of money may have generated a few extra jobs, but its net effect is questionable. It creates uneven growth and only benefits the rich and certain sectors at the expense of the majority. By suppressing our currency we enable people from outside Hong Kong to buy our assets and pay for our labour at a discounted price. The more productive we are, the cheaper it becomes relatively for others overseas. We are priced out from our goods locally but mainland visitors enjoy great bargains here.

Price increases result in higher rental income for landlords while the income of average wage earners stagnates.

As a consequence the wealth gap in the city is growing wider.

Imposing higher taxes on the rich and property ownership helps redistribute wealth.

A tax specifically on property ownership, with a higher yearly assessed rate and increasing interest rates for those borrowing from banks, excluding first-time home buyers, also helps to narrow the wealth gap, without harming our competitiveness. If restaurants and other businesses were spared skyrocketing rents, they could pay staff more, thus boosting domestic consumption. More businesses would survive, also encouraging new start-ups. A goods and services tax on certain luxury items might lead to lower tourist numbers but we would attract bigger-spending visitors.

The US Federal Reserve determines the strength of our currency and Beijing controls our politics. We must be wise enough to know what we can and cannot fix. The source of discontent of the middle class is not political but rather economic.

Bernard E.S. Lee, Tsuen Wan

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