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Managed float best option if peg removed

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The Government would probably opt for a 'managed float' if it scrapped the dollar peg, according to investment bank ABN Amro.

'We have ruled out dollarisation and a one-to-one peg with the [yuan],' the bank said. 'We view a managed floating system as the most appropriate policy option as against a re-pegging which does not offer the much-needed 'flexibility' that the financial secretary has advocated.'

ABN Amro does not think Financial Secretary Antony Leung Kam-chung should remove the long-standing cornerstone of economic policy for at least nine to 12 months.

'It takes much political will and prowess for such a move, which [Mr Leung] . . . will take time to build up,' wrote Irene Cheung, Asia sovereign and foreign-exchange strategist.

Mr Leung has roiled financial markets with his remark that the 18-year-old peg was an 'obstacle' to the efficiency of the economy.

A managed float would involve freeing the currency from its fixed rate of HK$7.8 to the US dollar and allowing markets to determine its level. If officials felt the level was too high or low they could intervene in the markets and 'manage' the currency.

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