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SCMP Reporter

A devaluation of the yuan would not necessarily lead to the decoupling of Hong Kong's currency from the US dollar, according to one of the main architects of the linked exchange rate system.

 LGT Asset Management chief economist John Greenwood said the yuan had effectively depreciated by about 70 per cent since the 1980s without having an adverse impact on the Hong Kong dollar.

 'I see no reason why Hong Kong's method of economic adjustment should be changed just because there may be change [in the yuan],' he said.

 Hong Kong would have endured economic volatility with a floating exchange rate, although the pressure would have been reflected through higher inflation, rather than higher interest rates, he added.

 At a conference organised by the Far Eastern Economic Review, Mr Greenwood warned the Government should brace for a possible devaluation, despite assurances from mainland authorities that there were no plans to do so.

 Investors across Asia fear the continuing slide of the yen will lead to a yuan devaluation and in turn jeopardise the Hong Kong peg, sparking a new round of attacks on regional currencies.

 Other economists believed while a devaluing of the yuan would be disastrous for Hong Kong, it was unlikely to happen at least in the short term.

 Clive McDonnell, head of economic research at SG Global Equities, said Beijing would be reluctant to move on the currency to protect the mainland's export edge.

 This had been proven by the export performances of other economies in the region subsequent to the weakening of their currencies, Mr McDonnell said.

 Bank of America's head of Asian research, Andrew Freris, agreed that devaluing the yuan would not bring about a turnaround in its economy.

 Mr Freris said the yuan would not be devalued 'not because the Chinese Government says so, but because it doesn't need to'.

 'Economic cycles in China are driven by investment and domestic consumption levels, not by net exports,' he said.

 Fund manager Marc Faber also believed there was no need for a devaluation of the yuan.

 However, if the mainland's export growth started to wane over the next three to four months 'I think then they may consider a devaluation', he said.

OFF THE PEG HK told to brace for possible shift in yuan Mainland devaluation 'unlikely' soon Waning export growth seen as key to change 



Peg architect says China devaluation will not lead to dismantling of system