Amid all the speculation over a revaluation of the 8.30 yuan peg to the US dollar, it seems that little consideration has been given to the impact on Hong Kong, which also has its fortunes tied to the once-mighty greenback. With reference to a Lehman Brothers paper - 'A New Phase of [US] Dollar Weakness' - it might have been appropriate to add in the Hong Kong prefix. After all, we are all in the same boat. The difference is that the vast American economy can largely ignore its currency's value. It is not that simple for small Hong Kong, however. If China heeds the Group of Seven's call to allow its currency to rise, Hong Kong's 20-year-old peg could look increasingly like an anachronism. While Hong Kong's currency shares the decline of the US dollar, it is less equipped to stave off the potentially harmful impact of sucking in inflation by substituting domestic consumption for imports. Worse still, if China revalued now, it would make the imports of our biggest trading partner more expensive. Hong Kong would also be unable to enjoy the countervailing trade-off boost to exports. What is more noticeable to many, is the diminishing purchasing power of our Hong Kong dollar. Of course, the size of any yuan revaluation makes a big difference. If the speculation earlier this week in a mainland newspaper of a 5 per cent revaluation is correct, the situation is less problematic. It seems no small coincidence that the value of the yuan would then rise to 7.80 to the US dollar, on par with the HK dollar. It also could look a little like a tidying up exercise, as already in Shenzhen the currencies are exchanged on a one-for-one basis, despite both being pegged to the US dollar and not each other. However, currencies need to be more than a convenient medium of exchange, offering also a store of value. China is unlikely to find this token gesture sufficient to repel the hot money flows seeking further gains. In fact, it risks triggering more speculative portfolio flows. According to Lehman Brothers estimates, these reached a colossal US$80 billion last year, against net outflows a year earlier. This is when things will get more difficult for Hong Kong. In the event of, say, a 30 per cent move by the yuan, could Hong Kong really stick by its peg to the US dollar? The HK dollar is already undervalued if you consider real effective exchange rates, according to the investment bank, which ranks it the second-most undervalued currency, behind the Taiwan dollar, in Asia. The trigger for appreciation of Asian currencies is more portfolio inflows and central banks losing some of their fondness for US foreign-exchange reserves. Ultimately, Hong Kong's accelerating integration with China makes a future cross-border currency union inevitable and, indeed, desirable. Of course, these discussions will remain hypothetical until China achieves an openly convertible currency - a peg to a basket of currencies seems to be the most likely option. But as China is clearly moving in this direction, surely Hong Kong will need to once again take stock of the pros and cons of its long-standing dollar peg.