Should Hong Kong Dollar Depeg with USD Essay

Published: 2020-02-18 12:11:09
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Category: Dollar

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Since Joseph Yam had mentioned by June 2012that it should be time to call for a review of the link to dollar. This reminded us to focus back on this 29-year-old currency linking system of HKD to USD. It was a very good / effective system to help Hong Kong to remain stable under the economic turmoil when first applied in 1983. This formed a very firm firewall to protect the stability of the Hong Kong Dollar. We also had the testimony for the effectiveness of this system while the economic crisis that happened in 1997 and 2007.

Although the Hong Kong Government had shown their loyalty of pegging the Hong Kong Dollar to U. S. currency and had announced that there are no plans to adjust such link. But I really agree with Joseph Yam that it should be time to call for a review. Since we all know that Hong Kong is having a higher and higher inflation rate that makes the whole city suffer. As well as most of the inflation we experiencing are imported inflation. We may find that U. S. is seeming to have a down slope economic trend and their currency is a lot weaker than before, especially against RMB.

If Hong Kong still insists to peg HKD with U. S. currency that means we will, to some extend, having the same trend and future with the state i. e. declining. Moreover, Hong Kong is a place that mainly depends on import and almost all our daily necessities are imported from other countries and of which, mainly from Mainland China. RMB is now having a very strong appreciating trend from which HKD had depreciated 40% to 50% against RMB in the past decade. And we found that the price of food and products that imported from China is becoming more and more expensive.

That really makes the whole city suffer. I am quite agreed with what William Ackman, founder of hedge fund Pershing Square Capital Management LP, said in September that he had placed a wager that would profit if Hong Kong allows its currency to appreciate against the dollar to curb inflation. Also to switch the linking of HKD from USD to RMB in the coming three to six years. This is one of the effective ways to release the painful situation we are currently experiencing. Lets not afraid of changing from the 29-year-old policy to a new and aggressive format.

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