YOU do not need a Masters of Business Administration from Harvard to work out that foreign exchange is going to be big business with so many banks in Hong Kong. John Gray, chairman of Hongkong Bank, predicts the territory will leap up the league table of dealing entities on the back of China business. His thesis has seductive logic. China's economy is growing fast. The market opening process is leading to huge foreign exchange demands. And Hong Kong's currency is already trusted over the border. Come 1997, demand will still be growing and the best place to satisfy it will be Hong Kong. Mr Gray told the Forex Association yesterday that three things were needed to make his prediction come true: continued strong Chinese economic growth; keeping the US dollar peg, and aggressive competition among businesses. The first condition is what the Americans call a ''no brainer''. The third will hopefully be taken care of by the cut-throat competition between banks in Hong Kong - on the level international playing field at least. His assertion that the US dollar peg is a vital component in the equation is more open to attack. Is it really vital for the Hong Kong dollar to be a surrogate of the US dollar? Surely forex trade can be carried out in yuan and US dollars without questions being asked about the Hong Kong dollar's exchange rate? Possibly. But if David Roche's doom-laden analysis is correct then irreparable damage could have been done to the territory's good name in China. The key here is the people who have converted their meagre yuan savings into Hong Kong dollars and stuffed their mattresses with them. If, suppose, they discover the Hong Kong dollar has devalued, their faith in Hong Kong as a tough, resilient financial centre will be shattered. And the psychology can be extended to even the most sophisticated Chinese enterprises - or anywhere else. Stability is what counts in a financial centre's reputation, which is why Switzerland is still a favoured monetary haven, even though many places now offer such stringent secrecy laws. But why is the peg any stronger than the European Exchange Rate Mechanism (ERM), and why by drawing a line in the sand should real stability be created and not its illusion? The peg can be broken. The sharks know almost to the penny how much the Exchange Fund can spend on defending the unit before it must break. Britain spent GBP17 billion (about HK$195 billion) vainly defending its ERM position. Will Hong Kong really spend more? Prediction: if Hong Kong suffers any political or economic shocks which start capital flight, this kind of article will be attacked as irresponsible.