WEDNESDAY, FEBRUARY 26, 1975
26
FINANCIAL SECRETARY DEFENDS DOLLAR FLOAT
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THE FINANCIAL SECRETARY, THE HON. PHILIP HADDON-CAVE, TODAY RULED OUT THE POSSIBILITY OF IMPOSING AN EXCHANGE RATE CONTROL SYSTEM OR ARTIFICIALLY WEAKENING THE HONG KONG DOLLAR FOR THE SAKE OF HONG KONG'S EXPORT TRADE.
+ IT WOULD BE COUNTER-PRODUCTIVE TO CHEAPEN THE CURRENCY ARTIFICIALLY BECAUSE, AS SOON AS IT BECAME APPARENT THAT THE MARKET WOULD NOT ACCEPT THE LOWER RATE, THERE WOULD BE A TENDENCY FOR FUNDS TO FLOW IN AGAIN, HE SAID IN HIS BUDGET SPEECH. THE RESULT WOULD BE A RENEWED STRENGTHENING OF THE HONG KONG DOLLAR RATE.+
ANY WEAKENING OF THE HONG KONG DOLLAR AS A RESULT OF REFLATION WOULD NOW FOLLOW ONLY AFTER A LONG DELAY, BY WHICH TIME SUCH A WEAKENING MAY NO LONGER BE DESIRABLE, HE SAID. IN FACT, HE ADDED,
IF DONE ON A LARGE SCALE IT COULD HAVE THE OPPOSITE EFFECT DY WEAKENING OUR BALANCE OF PAYMENTS ON CURRENT ACCOUNT AND PARTLY BY MAKING OUR EXPORT PËRFORMANCE WORSE.
THE GOVERNMENT WOULD NOT HESITATE TO INTERVENE IN THE MARKET TO SMOOTH OUT OBVIOUSLY ERRATIC OR WAYWARD MOVEMENTS, MR. HADDON-CAVE STRESSED, BUT HE WAS TOTALLY OPPOSED TO ANY IDEAS WHICH WOULD · INVOLVE A FORM OF EXCHANGE CONTROL, SUCH AS, FOR EXAMPLE, A TWO-TIER RATE SYSTEM.
HOWEVER, HE DID NOT RULE OUT THE USE OF INTEREST WITHHOLDING TAX AS A POSITIVE REGULATOR.
THE FINANCIAL SECRETARY APPRECIATED THAT THE FLOATING OF THE HONG KONG DOLLAR AGAINST THE U.S. CURRENCY, FROM LATE NOVEMBER LAST YEAR, HAD ADDED TO THE UNCERTAINTIES FACING THE HONG KONG BUSINESS COMMUNITY, AND THE PERSISTENT STRENGTHENING OF THE HONG KONG DOLLAR IN RELATION TO CURRENCIES OF SOME OF OUR MAJOR TRADING PARTNERS HAD BEEN DETRIMENTAL TO HONG KONG EXPORTERS.
HE ADDED, HOWEVER THEIR MAIN PROBLEM IS CLEARLY A LACK OF ORDERS AND EVEN IF A WEAKER HONG KONG DOLLAR ALLOWED THEM TO QUOTE PRICES WHICH WERE THREE OR FOUR PER CENT LOWER. THERE IS NO EVIDENCE THAT THIS WOULD ENABLE THEM TO ATTRACT ORDERS AT THE EXPENSE OF THEIR COMPETITORS ELSEWHERE, ALTHOUGH IT WOULD IMPROVE THE PROFITABILITY OF THE ORDERS ALREADY IN HAND.+
A FLOATING EXCHANGE, HE SAID, WAS IN ITSELF AUTOMATICALLY SELF-REGULATING LIKE ANY OTHER PRICE. IF THE HONG KONG DOLLAR RATE IS STRONG, REFLECTING EXCESS DEMAND FOR THE CURRENCY AND A TENDENCY FOR FUNDS TO FLOW IN FROM ABROAD, THEN THE HIGH PRICE IS ONE MEANS OF CONTAINING THE INFLOW.
/THE AUTOMATIC EFFECTS