Hong Kong Denies Currency Peg Rumours (Again)
From time to time question marks arise over the pegging of the Hong Kong dollar
to the US dollar, especially since the SAR's return to China, since presumably
one day in the future Hong Kong will need to link its currency to that of the
mainland. So when interbank rates rose sharply at the end of last week, there was another
bout of speculation over the viability of the pegged exchange rate. The Hong
Kong dollar is pegged to its US counterpart at a rate of HK$7.8 to US$1, and
there are no exchange controls, so that interest rates in the two currencies
normally move in tandem. The sudden jump last Friday in the benchmark three-month Hong Kong interbank
offered rate (Hibor) to 1.875% from 1.796% may have just reflected events in
the US, with a further cut in the Fed's rates suddenly less likely, or it may
have been a response to a statements from the Bank of China renewing its negative
attitude towards the peg: "the linked exchange rate undermines the prospect
of swift integration [of the Hong Kong economy] with the mainland," said
the Bank. However, Financial Secretary Antony Leung Kam-chung responded (as he always
does) by saying that the government does not have any plan to change the exchange-rate
mechanism. .
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