One of the enduring myths of the year is that significant flows of hot money have periodically been punted on a yuan revaluation that will somehow trigger a proportional rise in the Hong Kong dollar. The 'smoking gun' that supposedly settles the matter is an occasional surge in the aggregate balance, or the collective sum of Hong Kong dollars held by banks in the clearing accounts they keep with the Hong Kong Monetary Authority (HKMA) to settle their transactions with one another. At the risk of over-simplifying a complex argument, exhibit No1 in the case for the punters versus the currency peg is that the aggregate balance typically settles somewhere between $500 million and $1 billion. Under normal circumstances this is enough to keep the payments system well oiled. But occasionally (exhibit No2), the balance has ballooned to many billions of dollars - $14 billion now, $54.7 billion earlier this year - and on such occasions (exhibit No3), there has been a corresponding surge in both the spot and forward currency rates. This in turn ('exhibit No4 m'lud, and I promise to bring the argument to a speedy conclusion to allow time for lunch'), has forced interventions from the HKMA aimed at curbing the appreciation in the exchange rate and defending the peg. Crucially, if those unscrupulous punters can outbid the HKMA and encourage enough people to throw enough money at the Hong Kong dollar (causing that big jump in the aggregate balance in the process), they will break the currency peg and make their bets self-fulfilling. Case closed for the 'hot-money' argument - take the exchange rate gain and move on to fresh conquests. Well, not quite so fast. That's neat but a common fallacy of the post hoc ergo propter hoc variety, assuming an actual currency revaluation (it didn't happen nor is it likely to any time soon). True enough; the data assembled to make the case is accurate. On October 2 last year, the aggregate balance was just $978 million but by February it had exploded to $54.73 billion - a record. The chief cause of the jump was a sustained process of intervention in the money market by the HKMA in December and January, which in turn was aimed at capping a leap in both the spot and forward rates of the Hong Kong dollar - the latter firming to $7.67 (from $7.80) against the US dollar during this activity. The authority has a clearly stated point at which it arrests any fall in the value of the local currency ($7.80 to the US dollar), but it leaves the market to guess where it might cap gains to the dollar. Then, as now, the anomaly, given all of that excess liquidity, was a spike in overnight interest rates. Now, fast forward to the present. Having settled back to normal levels, the aggregate balance has jumped once again - to $14 billion. Currency rates have firmed and overnight interest rates have jumped - from practically zero (0.04 per cent) towards the end of November to 0.84 per cent on December 4 - and are now retreating. So, are speculators back in the market punting on a revaluation of the currency and trying to make their bet self-fulfilling? Not likely. Then, as now, money was gathering for mouth-watering assets that were up for sale. Expectations of a big credit draw-down spiked overnight rates and demand for the local dollar raised its spot rate - prompting a rise in forward rates based on the assumption that this was the thin-edge of the punters' wedge. In December last year it was a number of China plays that caught the attention of offshore investors, including the initial public offering of China Life Insurance, the biggest capital raising in the world last year, rather than prospects of a change in Hong Kong's pegged currency regime. Back to the present, and we have the distribution this week of the Housing Authority's Link real estate investment trust (reit), which aims to raise $23.7 billion and, based on the unbeatable 7 per cent yield at which the undervalued assets have been put up for sale, is likely to be massively oversubscribed, as was China Life's float. The aggregate balance and the dollar exchange rate of the local currency should return to normal once the dust of this week's reit has settled - and settle along with it the debate about hot money and the peg. cheque this out A United States Federal Reserve study released this week showed that the number of transactions conducted with credit cards, debit cards and other electronic bill paying finally eclipsed amounts drawn on paper cheques. The number (not value), of electronic payment transactions last year totalled 44.5 billion - exceeding the number of cheques paid, 36.7 billion - according to the study. 'The balance has shifted from cheque-writing to electronic payments and we expect this trend to continue,' Richard Oliver, a senior vice-president of the Federal Reserve Bank of Atlanta, told Agence France-Presse. Louis Beckerling will resume his column when he returns from leave in the new year.