Tsang Defends Currency Peg

by Philip Morton, Investors Offshore.com

03 December 2001

According to a report in the South China Morning Post on Friday, the former Hong Kong Financial Secretary and now Chief Secretary, Donald Tsang Yan-kuen robustly defended the currency link between the Hong Kong and US dollars, refuting claims that the peg had made the jurisdiction less flexible and competitive.

Responding to a question at an Asia Society lunch last week on whether the SAR could withstand the impact of the abolition of the peg, an issue which has been the subject of much speculation recently, Mr Tsang said: 'I can't agree with you that the handicap is the peg. That link has served us very well over the years. We have seen through a number of financial crises with it.'

In what could easily be interpreted as a put-down to the questioner, who had suggested that the link between the two currencies was holding the jurisdiction back, he added: 'We don't call it a peg, by the way. I hate that term, it is called a link.'

Mr Tsang explained that the government's top priority was to maintain market stability, and that the currency link was key to this, as to remove it would encourage speculation on the local currency. Suspicions regarding the Hong Kong authorities' commitment to the link were first aroused in August, when the Finance Secretary, Antony Leung Kam-chung, described it as an 'obstacle' to the jurisdiction's flexibility and efficiency.

However, the Chief Secretary appeared adamant last week that the peg would stay, explaining that it would be 'disastrous' to make any major changes in the current climate of economic uncertainty. Speaking on Thursday, he reiterated his earlier comments, observing: 'There is no such thing as a perfect monetary system...The most important thing is we must have a monetary system that suits Hong Kong.'

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