Financial Secretary Donald Tsang Yam-kuen yesterday ruled out 'dollarisation' as a means of warding off speculative attacks on the currency. He also rejected claims the peg with the US dollar would break if the yuan was devalued. 'Dollarisation' means allowing anyone to convert money into US dollars at the fixed rate of US$1 to HK$7.80, making it pointless for speculators to bet on the possibility the rate would be varied. Mr Tsang said he was strongly against 'dollarisation'. 'A currency signifies sovereignty. Hong Kong is a Special Administrative Region of China,' he said. 'Dollarisation would mean the dissolution of the Hong Kong Monetary Authority and giving up all controls to the US Federal Reserve Board.' Mr Tsang rejected criticism that Hong Kong had only one tactic - raising interest rates - to protect the peg. 'What matters is it works,' he said. Mr Tsang said he appreciated the work of academics who had proposed various methods to protect the peg. The Government would make a detailed response at the end of next month, when it would also unveil measures to plug loopholes in the stock and futures markets to reduce volatility. He said the view that the Hong Kong dollar must devalue if the yuan did so had no basis because the two currencies were founded on different economic systems and managed independently. One could even argue Hong Kong would benefit from a yuan devaluation, because it would boost mainland exports and generate business for the SAR's service sectors, he said. On the other hand, Hong Kong would be hurt because it would become the most expensive place in Asia apart from Japan. Hong Kong could also be hurt if foreign investors hesitated about investing on the mainland for fear of further devaluations. Mr Tsang said he believed in the good sense of mainland officials not to devalue. The mainland would be better off exploiting its huge pool of labour and abundant land to boost competitiveness.