Amid discussions on the increasingly close relationship between Hong Kong and mainland China, the possibility was raised at a Lehman Brothers global economic conference in Singapore this week that Hong Kong could eventually replace its current currency pegging against the United States dollar with the yuan.
According to a report in the South China Morning Post, Russell Jones, global head of foreign exchange research for Lehman Brothers, announced to the conference delegates that such a measure would make common sense, saying 'over the last two decades, the Hong Kong economy has become increasingly integrated with the Chinese economy and as they get closer and closer together, it would be more logical to manage its exchange rate along with the yuan.'
Hong Kong's economic policy typically shadows that of the US Federal Reserve, and Mr Jones added that it is perhaps good timing for Hong Kong to align with the yuan given the cutbacks in US interest rates.
Mr Jones stressed that the Hong Kong dollar's pegging to that of the United States dollar (currently it is pegged to the US currency at US$7.78) has been a very positive policy for the jurisdiction, saying 'I think the peg has served Hong Kong extremely well.'
The idea is certainly something for the Hong Kong government to think about but it is unlikely that such a large step will be taken in the very near future and it is too early for the government to comment on it. However, as the relationship between Hong Kong and China grows stronger - particularly in political and economic terms - an alignment to the yuan will become more and more feasible.
But for the time being Hong Kong is committed to the US dollar, particulay given that in December last year the implementation of the third and final phase of Hong Kong's US dollar payment system took effect with a new clearing mechanism offering US dollar cheque clearing, utilising the US dollar Real Time Gross Settlement (RTGS) service and the Central Moneymarkets Unit (CMU).
The Lehman Brothers' global economic conference opened on Monday this week in Tokyo and aims to travel across Asia stopping at major cities, concluding in Sydney on Monday of next week.
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