Thursday, January 11, 2007

Yuan Rises Above the Hong Kong Dollar

Today, the Chinese yuan reached a higher value than the Hong Kong dollar for the first time since 1994. The yuan is appreciating steadily against the U.S. dollar -albeit at a too slow pace-, while the Hong Kong dollar remains pegged at a rate of 7.80 to the U.S. dollar. This is expected to increase pressure on Hong Kong authorities to tie its currency to the yuan rather than the dollar. As mainland China is a far bigger trading partner to Hong Kong than the U.S., this would seemingly be more natural.

However, to safeguard Hong Kong's position as a regional financial centre, any such move must wait until the yuan has become fully convertible. But when that happens, it would be just as well for Hong Kong to not simply peg the Hong Kong dollar to the yuan, it should in fact abolish the Hong Kong dollar and replace it with the yuan. As Hong Kong monetary authorities would follow the monetary policies of the People's Bank of China anyway, there is no real motive for keeping the Hong Kong dollar, while doing away with it would eliminate transaction costs and increase transparency.


Post a Comment

<< Home