Factors that affect Hong Kong's property market are well-documented, and they only occasionally include the city's currency peg to the US dollar. But when a financial heavyweight, such as former Hong Kong Monetary Authority (HKMA) chief executive Joseph Yam Chi-kwong, mentions the peg as contributing to problems in the real estate sector, it is difficult to ignore. The government's stance has always been that for the past three decades, the US dollar peg has played a pivotal role in maintaining Hong Kong's economic stability by minimising foreign exchange volatility. The peg has also been credited with helping the city weather many global financial crises. But in his academic paper entitled 'The Future of the Monetary System of Hong Kong', published last month, Yam says Hong Kong is forced to import monetary policy from the United States, resulting in soaring inflation and property prices. 'There is a need to address the question as to whether the monetary system of Hong Kong, as currently structured, can continue to serve the public interest of Hong Kong.' Yam's views were quickly rebuked by top government officials. Chief Executive Leung Chun-ying, speaking before he took office, insisted there was no need to change the currency peg. At present, HKMA chief Norman Chan Tak-lam says the peg has served Hong Kong's small and open economy very well, and should not be changed. He says the performance of the real estate market is influenced by the supply of land, and the demand and supply of flats, and it is something that will not change, even if the currency peg is altered. Centaline Property Agency co-founder Shih Wing-ching says the economies of Hong Kong and the US often run at different speeds and paths. Despite that, Hong Kong could still tolerate some ups and downs in property prices, while maintaining the currency board system. 'While the euro, a major currency, is being threatened by the euro-zone debt crisis, the dollar is safer,' Shih says. 'Now is not the time to consider de-pegging. I believe the government has been thinking about whether it should stick with the peg, it just never admits it openly.' Independent economist Andy Xie suggests that even a flexible rate would not ease inflation or prevent asset bubbles. He believes Hong Kong's government policies and its political economy, and not the peg, is to blame for its tendency to develop asset bubbles.
