Hong Kong's Knowledge in Functioning the Forex Board System

 Hong Kong’s Experience in Operating the Currency Panel System Research Paper

Hong Kong's Experience in Operating the Currency Plank System Priscilla Chiu

Hong Kong Monetary Expert

I.

INTRO

When Hk revived the currency plank arrangements in October

1983, it confronted a financial globe that was vastly different from that previous in the hundred years when currency boards flourished in Uk colonies and protectorates. 1 Bank deposit had absorbed currency remarks as the predominant channel of exchange.

Capital

mobility had been drastically enhanced: large sums of money could be transmitted across national borders in a fraction of your second. In addition, following the death of the Bretton Woods system, most main industrialised financial systems had floated their foreign currencies, and sharpened volatility was seen in the international foreign exchange market occasionally. Furthermore, indigenous banks acquired grown along with international banks, requiring more awareness of issues such as the provision of support as being a lender of last resort.

Hong Kong presents a fascinating case study not simply because it has a relatively long history in operating a modern-day money board. The structure in the economy, characterized by a high degree of openness, complete lack of exchange settings, and sizeable financial flows, makes it especially prone to challenges of the present-day financial system. Each of our experience in tackling these types of problems can be of relevance to additional currency plank economies.

All of those other paper is usually organised as follows: the next section describes the circumstances under that this linked exchange rate program was used in 1983. This is adopted in section III by a discussion of the reforms performed to strengthen the program from 1988 up to the period before the Oriental financial hardship in 97. Section 4 recounts prominent aspects of the experience throughout the turmoil, although section Sixth is v discusses additional technical reconstructs to enhance the resilience from the monetary agreements. Section MIRE turns to the economic adjusting process inside the post-crisis

period, examining changes in the business sector, banking sector innovations and fiscal coverage. The final section highlights a number of the challenges ahead.

II.

HISTORY

LEADING TO THE ADOPTION WITH THE LINKED EXCHANGE RATE

SYSTEM

In the good Hong Kong, a fixed exchange price system has been a norm rather than an exception. This kind of largely reflects the characteristics of Hong Kong being a highly externally-oriented economy, which will desires a strong anchor for the external value of its forex. 2 In this respect, Hong Kong varies from other currency board economies that in recent years adopted the system being a strong commitment to halt hyper-inflation.

As seen in Table 1, the Hk dollar floated for just nine years, from 1974 to 1983. The economy performed well in the early part of this period: it reclaimed speedily in the oil crisis, achieving impressive growth (of over 10%) with modest inflation (of 4-6%) in 1976-78. However , signs of reaching extreme temperatures emerged in late 1970s, fuelled by community construction assignments and the thriving property market. Growth of wide-ranging money supply and home loans escalated to average annual rates of 35% and 43% respectively between 1979 and 1982. Client inflation surged to over 15% in 1980-81, and the exchange rate in the Hong Kong money depreciated simply by over twenty percent during the period from 1979 to 1982 (Charts 1 & 2).

1

a couple of

Before 1935, the Hong Kong dollar was based on the silver regular. It was simply after the desertion of the sterling silver standard in China the fact that Hong Kong dollars was set against the pound sterling beneath the currency panel arrangement. Observe also desk 1 . Visible and invisible trade made up about 300% of GROSS DOMESTIC PRODUCT in 2150.

2

Stand 1

Particular date

Exchange Charge Regime

Guide Rate

1863 – four November 1935

Silver Regular

Silver us dollars as legal tender

December 1935 – June 1972

Url to Sterling

ВЈ1 = HK$16

(December 1935 – November 1967)...