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Reassessment of peg mechanism is long overdue

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I read with interest your editorial of April 19 headlined 'No simple answers'.

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In view of the current record unemployment rate of seven per cent in Hong Kong, second only in Asia to the Philippines, one sentence stood out: 'The pegged exchange rate forces the whole economy to make a choice that boils down to either lower wages or high unemployment'. I am no economist but speaking as a layman surely this would not be a bad thing. Lower wages would mean that multinational companies would presumably invest more in Hong Kong and this would help to stop the drain of multinational head offices to countries such as Singapore.

I have read many articles on the subject of de-pegging in the South China Morning Post over the years, but I have not seen a definitive article on the subject clearly articulating the pros and cons for, or against, such a move. All I ever seem to read is the old mantra that the dollar peg saved us from disaster during the Asian financial crisis of 1997-1998, but other countries whose currencies were not pegged to the US dollar seem to have weathered the storm even better than Hong Kong did. For example, the unemployment rates in Japan, Korea, Taiwan and Singapore are significantly less than ours and this is in spite of having their own particular set of problems, especially in the case of Japan.

Korea certainly suffered more than Hong Kong on a short-term basis, but is now powering ahead and leaving us behind. Why is Hong Kong the only major financial centre in the world now pegged to the US dollar? If it is such a sound, long-term financial strategy why are other countries not jumping on the bandwagon? I am normally optimistic but Hong Kong is in trouble and I cannot see unemployment improving in the near future. I feel things will get much worse before they get better. Floating the Hong Kong dollar is an alternative which our Financial Secretary should be looking at in great detail.

Hong Kong is changing, as is the global economy. If the SAR does not wish to be left behind, difficult decisions must be made.

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Clinging slavishly to the peg because it was perceived to be good for us five years ago may not be what is best for Hong Kong now and it just may be time for a change.

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