5
WEDNESDAY, MAY 29, 1991
TO CURE FOR
ON SUGGESTIONS THAT THE HONG KONG DOLLAR SHOULD BE LINKED A BASKET OF CURRENCIES RATHER THAN TO THE U.S. DOLLAR AS A
INFLATION, SIR PIERS SAID:
CIRCUMSTANCES
"NO ONE SHOULD BE UNDER ANY ILLUSION THAT IN OUR A BASKET WOULD PROVIDE THE CURE FOR THE CURRENT INFLATION. IT WOULD NOT.
HE POINTED OUT THAT HAD THE HONG KONG DOLLAR BEEN LINKED IN 1983 TO A BASKET REFLECTING THE COMPOSITION OF HONG KONG'S TRADE, THE EXCHANGE RATE OF THE HONG KONG DOLLAR AGAINST THE U.S. DOLLAR AT THIS POINT IN TIME WOULD BE AROUND 8.80 INSTEAD OF 7.80.
AND THE RESULT: INFLATION WOULD HAVE BEEN EVEN HIGHER THAN WAS TODAY.
IT
HE STRESSED THAT SWITCHING TO A BASKET WOULD MEAN GIVING UP STABILITY IN HONG KONG'S EXCHANGE RATE AGAINST THE U.S. DOLLAR, A CURRENCY THAT WAS EXTENSIVELY USED IN EXTERNAL TRADE, WELL ACCEPTED AND READILY UNDERSTOOD BY MEMBERS OF THE PUBLIC.
DOLLAR
"THERE CAN BE NO BASKET OF CURRENCIES INTO WHICH HONG KONG
BANKNOTES COULD BE CONVENIENTLY CONVERTED.
"THE CONVERTIBILITY OF HONG KONG DOLLAR BANKNOTES INTO A WELL ACCEPTED CURRENCY LIKE THE U.S. DOLLAR IS AN IMPORTANT FEATURE OF OUR LINKED EXCHANGE RATE SYSTEM, SIR PIERS SAID.
HE SAID HONG KONG WOULD HAVE TO GIVE UP THIS IMPORTANT FEATURE IF THE HONG KONG DOLLAR WERE INSTEAD LINKED TO A BASKET.
TO COIN A PHRASE, SIR PIERS SAID THERE WAS NO CERTAINTY
IN A BASKET. THE HONG KONG DOLLAR EXCHANGE RATE AGAINST THE U.S. DOLLAR AND INDEED AGAINST ALL CURRENCIES WOULD FLUCTUATE ALL THE TIME.
EXPORTERS,
"I DOUBT VERY MUCH IF THIS WOULD BE WELCOMED BY OUR OR THE MAJORITY OF THOSE IN HONG KONG WHO DO BUSINESS WITH THE REST OF THE WORLD.
THE SAID.
"I AM ALSO FIRMLY OF THE VIEW THAT IT WOULD NOT BE CONDUCIVE TO MAINTENANCE OF STABILITY AND PROSPERITY IN HONG KONG,
PIERS
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HE SAID DOUBTS HAD BEEN EXPRESSED AS TO WHETHER OR NOT KEEPING INTEREST RATES FOR THE HONG KONG DOLLAR AT LEVELS HIGHER THAN THOSE FOR THE U.S. DOLLAR REPRESENTED A DEPARTURE FROM THE GOVERNMENT'S MONETARY POLICY OF MAINTAINING EXCHANGE RATE STABILITY WITHIN THE FRAMEWORK OF THE LINKED EXCHANGE RATE SYSTEM.
"LET ME SAY IN NO UNCERTAIN TERMS THAT THERE IS NO SUCH
DEPARTURE.
7.
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"THE EXCHANGE RATE HAS STRENGTHENED SOMEWHAT AWAY FROM UNDER THE INFLUENCE OF HIGHER HONG KONG DOLLAR INTEREST RATES, BUT FOR AS LONG AS THE DEVIATION FROM 7.80 CAN BE EXPLAINED BY THE TEMPORARY INTEREST RATE GAP, THIS IS ACCEPTABLE, HE SAID.
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/SIR PIERS