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imports for the ultimate benefit of exports. These factors point to
the need for the Hong Kong dollar to be revalued in terms of the
U.S. dollar either by floating or by other means.
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Many countries pegged to the U.S. dollar have faced similar
Amongst them, Malaysia and Singapore have floated;
Cyprus and New Zealand are quoting rates daily based on the average
difficulties.
of the rates of their main trading partners.
The possibilities for Hong Kong
1. Revaluation to a new fixed rate
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This would reduce the cost of imports in Hong Kong dollar
terms but if it were decided to maintain the link with the U.S. dollar
and the latter continued to require support the U.S. dollar accruals would need to be sold for sterling to comply with MSP unless such
support were to be provided entirely by the commercial banks. The
lattor seems unlikely and there is opposition locally to rebuilding official sterling reserves in the absence of any indication regarding the future of the Sterling Agreement. However, given the disturbed conditions in the foreign exchange markets in general a change to a new fixed rate might also be no more than a temporary palliative pending the need for, another adjustment.
2. Step Changes
This would involve periodic changes of parity as and when the rate for a particular currency or bag of currencies or when the market trend in general moved appreciably other than on a purely temporary basis. However, as a first step revaluation to a new parity would first be required and step changes would follow thereafter, if they became necessary. Market intervention should normally only be necessary to deal with exceptional day-to-day movements and not as at present to counteract a continuing trend. If a particular.currency
or bag of currencies were to be used as the yardstick, which one would