Hong Kong could switch to yuan, dump US dollar peg: businessman Allan Zeman

Lan Kwai Fong Holdings chairman Allan Zeman remembers the days before the dollar peg. Three decades ago he was head of trading firm Colby International, and the Hong Kong dollar was wildly volatile.

"You would quote a price in the morning and by the afternoon you could be down 15 per cent. Hong Kong almost came to a standstill," Zeman said, speaking about the pre-peg era.

The decision to peg Hong Kong's currency to the US dollar decisively solved the volatility problem.

"It settled the market, and at that point you could sell the product and worry about the mark-up on the product rather than speculation on the currency. So, for 30 years, the peg has brought stability," he added.

Back in those days, Hong Kong was a manufacturing hub. Goods were made in Hong Kong and distributed offshore, and typically priced in US dollars. Factory owners' costs were primarily in Hong Kong dollars because they paid wages and other production costs in the local currency. The peg eliminated currency risk in their dealings.

Thirty years later, Hong Kong is no longer a manufacturing town, but the peg is still useful from a commercial perspective.