Letters | Hong Kong’s US dollar peg: giving it up for the yuan is neither legal nor desirable
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The writer fails to acknowledge that the Basic Law requires the use of the Hong Kong dollar (Article 111). Therefore, his proposal that “Hong Kong could start the transition by shifting the government payroll to yuan and start collecting taxes in yuan” would currently be contrary to the Basic Law.
Technically, Hong Kong could make the shift at any time. Just as Hong Kong switched from silver to sterling in 1935, and then from sterling to US dollar in 1972, it could shift from US dollar to renminbi at any time. The Hong Kong Monetary Authority has ample reserves. Whether it would be legal or desirable to switch is another matter.
The writer asserts that sticking with a US-pegged currency “means exposure to volatility”, but the US dollar has been more stable than the yuan. Since its 1994 base date, the standard deviation of JP Morgan’s monthly trade-weighted index for the US dollar has been 11.7 but 16.1 for the yuan.
He claims, “Entrenched US inflation threatens to bring back dollar swings like in the 1970s and/or US interest rate surges like in the 1980s – the effect on Hong Kong could devastate its property market.” But US inflation is not entrenched. Just as China did not create entrenched inflation with its stimulus policies of 2008-09, the current US episode of inflation (due to the stimulus of 2020-21) is likely to prove to be a one-off event.