Hong Kong Linked Exchange Rate

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Government should consider abolish the linked exchange rate system or pegged Hong Kong dollars with China Yuen (RMB) rather than the U.S dollars. The main reason is for this is it will help the future development of Hong Kong economy. Exchange rate is how much a currency worth in terms of other currency. If currency is free floating, which allows the exchange rate vary against other currencies determined by the market forces of supply and demand. Some countries may use fixed/pegged exchange rate system to stabilize the exchange rate. Linked exchange rate system is a kind of exchange rate regime to link the exchange rate currency to others. Mole (1996) said Hong Kong Monetary Authority (HKMA) introduced this system though the currency board system in 1983 when Britain was talking with China for transfer of sovereignty of Hong Kong; people fear and lack of confident for the Hong Kong’s Future. In addition, the Sino-British Joint Declaration also contributed to a pessimistic atmosphere. Owing to these reason, it forms the currency, banking and fiscal crisis. However, the environment changed; Hong Kong returns to China in 1997 successfully and peacefully, which means that the main reason for introducing linked exchange rate disappear and the economy environment is changing according to the globalization. Therefore, the linked exchange rate system seems that not fit the Hong Kong’s economy environment anymore. Government should consider abolish the linked exchange rate system or pegged Hong Kong dollars with China Yuen (RMB) rather than the U.S dollars. The main reason is for this is it will help the future development of Hong Kong economy. Firstly, linked exchange rate system restricts the power to cool down the inflation by adjusting interest rate by central bank and HKMA lacks of effective monetary policy to combat inflation and caused serious negative interest rates (negative interest rate which is the situation that when the bank interest rate is less than the...
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