Hong Kong dollar should link to basket, says Stiglitz

Hong Kong should consider pegging the Hong Kong dollar to a wider basket of currencies to better safeguard its status as a trading hub, says Nobel laureate Joseph Stiglitz, who also advocates a new global reserve currency to replace the US dollar.

While Hong Kong had been "remarkably successful in maintaining the currency peg for 30 years", the growing dominance of the yuan and other regional currencies could be "problematic" for the city, the former World Bank chief economist said at a talk on the global financial crisis at the Chinese University of Hong Kong yesterday.

"At the moment, the US dollar is going down, which strengthens Hong Kong's exports." But what if the dollar rebounded, he asked.

Stiglitz, who in 2009 chaired a United Nations commission on the feasibility of establishing a global reserve currency, also questioned China's persistence with buying United States debt, why it wanted to hold "a wasting asset yielding negative interest rates". A global reserve currency might help alleviate some of these issues but despite strong support from China, Russia and France, the ideas proposed by his committee were shot down by the US, he said.

A long-term critic of self-regulation and unfettered markets, Stiglitz dismissed many of the more popular free-market theories as "ideologically driven" and subsequently discredited by the 2008 financial crisis.

In his writings, he has been especially critical of what he calls "asymmetric globalisation" and "excessive financialisation", whereby governments compete in a race to the bottom to offer tax rebates and loose labour laws to global corporates while those same firms reward top executives with ever-higher pay packages.