XN000022-1981-07-22 — Page 7

WEDNESDAY, JULY 22, 1981

6

VALUE OF HONG KONG DOLLAR EXPLAINED

****

THE RELATIONSHIP BETWEEN THE HONG KONG DOLLAR AND THE US DOLLAR LARGELY IF NOT ENTIRELY REFLECTS THE UNUSUAL AND CONTINUING STRENGTH OF THE US DOLLAR AGAINST ALL OTHER CURRENCIES, RATHER THAN A WEAKNESS OF THE HONG KONG DOLLAR. THE FINANCIAL SECRETARY, THE HON JOHN BREMRIDGE SAID IN LEGISLATIVE COUNCIL TODAY (WEDNESDAY).

THIS IS CLEARLY DEMONSTRATED BY THE FACT THAT IN TERMS OF THE CURRENCIES OF HONG KONG'S 15 MAJOR TRADING PARTNERS THE EXCHANGE VALUE OF THE HONG KONG DOLLAR HAS BEEN VIRTUALLY UNCHANGED THIS YEAR.

ON JULY 17, MR BREMRIDGE SAID, THE EFFECTIVE EXCHANGE RATE INDEX OF THE HONG KONG DOLLAR, AT 88.1, WAS ONLY 0.1 PER CENT LOWER THAN AT THE END OF LAST YEAR. THIS (JULY 22) MORNING IT WAS 88.7 PER CENT, OR 0.6 PER CENT HIGHER.

MR BREMRIDGE SAID A PERIOD OF EXTREME CURRENCY FLUCTUATION SUCH AS WE HAVE SEEN IN RECENT YEARS MAKES LIFE VERY DIFFICULT FOR EXPORTERS IN ALL COUNTRIES, WHO NEED TO PRICE THEIR PRODUCTS AND TO KNOW THE COST OF THEIR IMPORTED COMPONENTS, AND HONG KONG MANUFACTURERS ARE NO EXCEPTION.

+WE CAN, HOWEVER, DRAW SOME SUPPORT FROM THE FACT THAT WHILE AS OF JULY 17 THE HONG KONG DOLLAR HAS DEPRECIATED SINCE THE END OF THE YEAR BY 1.5 PER CENT IN TERMS OF THE CURRENCIES OF OUR MAJOR BUYERS OVERSEAS, SO IMPROVING THE COMPETITIVENESS OF OUR EXPORTS. IT HAS APPRECIATED BY 0.8 PER CENT IN TERMS OF THE CURRENCIES OF OUR MAJOR SUPPLIERS OVERSEAS, SO REDUCING THE COSTS OF OUR IMPORTS OF RAW MATERIALS AND SEMI-MANUFACTURES.+

THIS HELPFUL TWIST IN INTERNATIONAL CURRENCY RELATIONSHIPS IS A FACTOR IN THE CONTINUING STRENGTH OF HONG KONG'S EXPORTS, HE SAID.

+IT ALSO APPLIES TO THE DEPRECIATION OF THE HONG KONG DOLLARS AGAINST THE US DOLLAR, BECAUSE AS THE UNITED STATES IS MORE IMPORTANT AS AN EXPORT MARKET FOR HONG KONG PRODUCTS THAN AS A SOURCE OF OUR IMPORTS (THOUGH THE PRICE OF OUR FUEL IN PARTICULAR IS EXPRESSED IN US DOLLAR), THE FAVOURABLE EFFECT ON OUR EXPORT COMPETITIVENESS OF THE DEPRECIATION OF THE HONG KONG DOLLAR AGAINST THE US DOLLAR SHOULD BE GREATER THAN ITS ADVERSE EFFECT ON IMPORT PRICES.

*THIS IS ONE REASON WHY HONG KONG'S EXPORT PERFORMANCE TO THE UNITED STATES HAS BEEN IMPRESSIVE, + MR BREMRIDGE SAID.

HOWEVER, HE SAID THESE CONSIDERATIONS ARE UNFORTUNATELY NOT SIMPLE AND IT IS OFTEN A MATTER OF SEEKING THE LEAST BAD OUTCOME AFTER A DIFFICULT BALANCING OF ARGUMENTS.

/+IN THIS