Jolt from Swiss franc confirms Hong Kong should keep dollar peg: finance chief
The shock delivered by the Swiss franc is a good reminder why Hong Kong must not ditch its peg to the US dollar, the city's finance chief said in his weekly blog.
The shock delivered by the Swiss franc is a good reminder why Hong Kong must not ditch its peg to the US dollar, the city's finance chief said in his weekly blog.
The Swiss central bank's move to abandon the franc's peg with the euro was like a "tsunami" and had important lessons for Hong Kong, wrote Financial Secretary John Tsang Chun-wah.
The turmoil that followed the Swiss decision undermined "investor confidence" and "credibility" in the landlocked nation, he wrote, comparing Hong Kong's own currency policy to a mythical talisman with the power to control tempests.
"Central banks take a long time to establish credibility. The sharp appreciation of the Swiss franc will weaken the Swiss economy's overall competitiveness … and may even lead to an economic slowdown and deflation," Tsang wrote.
His message to international investors was clear: unlike Switzerland, Hong Kong's reputation for financial stability was unshakeable because its currency policy was unwavering.
"It can be called a magic needle for calming the sea of the Hong Kong economy," Tsang wrote, comparing the 30-year-old peg to a famed needle owned by the Chinese Dragon King of the East Sea. "I would like to take this opportunity to reiterate that … we have no plan to change such an effective system."
His comments were also likely aimed at criticism that the peg shackles Hong Kong's interest rates to the US Federal Reserve at a time of high local inflation.
The decision by the Swiss National Bank (SNB) to end a three-year-old peg to the franc, put in place to defend the currency from speculators during the financial crisis, sent the safe-haven currency soaring.
Only weeks earlier, SNB chairman Thomas Jordan had described the peg as "absolutely central" and the cornerstone of the bank's monetary policy.
The franc is now up 20 per cent, trading at parity with the euro, while the key Swiss stock market index has lost nearly 6 per cent. The SNB decision wreaked havoc on currency markets and forced several foreign exchange brokerages into administration.
US-based FXCM, one of the world's largest foreign exchange trading platforms, received a US$300 million bailout loan on Friday from investment group Leucadia National after reporting it was owed US$225 million by clients.
