XN000022-1987-12-27 — Page 2

SUNDAY, DECEMBER 27, 1987

THE HK/US DOLLAR LINK: FACT SHEET

**

THE HONG KONG GOVERNMENT LINKED THE HONG KONG U.S. DOLLAR AT THE RATE OF 7.80:1 JN OCTOBER 1983 COMMITTED TO MAINTAIN THE LINK AT THIS RATE.

THE HK$/US$ LINK:

HAS BEEN A VITAL FACTOR IN MAINTAINING INTERNATIONAL CONFIDENCE IN HONG KONG

DOLLAR

TO

THE

AND

IS

FIRMLY

DOMESTIC AND

HAS NOT RESULTED IN HONG KONG BUILDING UP A GLOBAL SURPLUS ON VISIBLE TRADE

HAS NOT CONTRIBUTED SIGNIFICANTLY TO THE THE U.S. TRADE BALANCE.

DETERIORATION OF

WHY THE LINK IS NEEDED

THE LINK WAS ESTABLISHED AT A TIME WHEN HONG KONG WAS SUFFERING FROM ECONOMIC DIFFICULTIES AND POLITICAL UNCERTAINTIES ARISING FROM THE SINO-BRITISH NEGOTIATIONS ON HONG KONG'S FUTURE, IN ORDER TO :

SUPPORT THE AKS WHICH WAS DECLINING FAST, INCLUDING A 15 PER CENT FALL AGAINST THE US$ IN TWO DAYS

то

CONTROL INFLATION, WHICH WAS RUNNING AT 10 PER CENT IMMEDIATELY BEFORE THE LINK WAS ESTABLISHED AND THREATENING ACCELERATE

PROMOTE CONFIDENCE IN HONG KONG'S ECONOMY AND FUTURE.

THE LINK HAS WORKED WELL. IT HAS PROVIDED EXCHANGE STABILITY, A MECHANISM FOR MONETARY CONTROL AND A STABLE PREDICTABLE FINANCIAL ENVIRONMENT. IT HAS KEPT INFLATION IN CONFIDENCE IN THE HKS AND IN HKS ASSETS HAS BEEN RESTORED.

RATE

AND

CHECK.

1997,

IN THE RUN-UP TO THE TRANSFER OF SOVEREIGNTY TO CHINA IN THERE ARE BOUND TO BE PERIODS OF POLITICAL OR ECONOMIC UNCERTAINTY BRINGING THE EXCHANGE RATE UNDER SERIOUS PRESSURE.

BREAKING OR ALTERING THE LINK EVEN ONCE WOULD ENCOURAGE SPECULATIVE ACTIVITY WHICH COULD BE GRAVELY DAMAGING TO HONG KONG TO ITS LOCAL AND FOREIGN INVESTORS.

AND

TOTAL U.S. INVESTMENT IN HONG KONG IS WORTH SOME US$6 AND THE UNITED STATES IS ALSO THE LARGEST OVERSEAS INVESTOR KONG'S MANUFACTURING SECTOR.

'IMPACT ON

BILLION;

IN

HONG