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PERTURBATION. WE DO NOT HAVE THE INFORMATION TO BE QUITE SO SURE ABOUT THE SCB. ALSO THERE COULD, PERHAPS, BE A QUESTION PN THEIR CASE ABOUT PRUDENTIAL WILLINGNESS TO ALLOW THE SCO TO REPLENISH ITS FOREIGN CURRENCY LIQUIDITY. THIS MAY NEED FURTHER EXPLORATION HERE AND IN LONDON.
SECTION * F. A DUAL CURRENCY SYSTEM.
NOTHING IS MORE DAMAGING TO THE HEALTH OF A CURRENCY THAN CONTINUING DEPRECIATION. SO, SUCCESSFULLY FIXING THE VALUE OF THE HONG KONG DOLLAR TO THE U.S. DOLLAR, MAKING IT AS GOOD AS U.S. DOLLAR, IN A CRUCIAL SENSE PRESERVES THE VALIDITY OF THE HONG KONG DOLLAR. IT WOULD, INSTEAD, BE IN CONDITIONS WHEN THE EXCHANGE VALUE OF THE HONG KONG DOLLAR WAS PLUNGING THAT ORDINARY PEOPLE WOULD NOT WANT TO BE PAID IN HONG KONG DOLLARS, SUPERMARKETS TO ACCEPT THEM, ETC.
ON THE OTHER HAND THIS SCHEME, IN ANOTHER SENSE, DOES ENCOURAGE THE FURTHER DEVELOPMENT OF A DUAL CURRENCY SYSTEM. THE LIKELY SHIFT OF HONG KONG RESIDENTS OUT OF HK DOLLAR DEPOSITS INTO US DOLLAR DEPOSITS MAY INDUCE BANKS IN ORDER TO PREVENT PORTFOLIO MISMATCH - TO BE RELATIVELY KEENER TO LEND *N US DOLLARS FORM RATHER THAN IN HK DOLLARS. SPREADS BETWEEN DEPOSIT AND LENDING RATES IN HK DOLLARS MAY WELL WH:DEN RELATIVE TO US DOLLARS, ENCOURAGING AN (ALREADY INCREASING) PROPORTION OF FINANCIAL INTERMED-KATHON TO BE DONE IN US DOLLAR TERMS. AN THE GARCUMSTANCES OF HONG KONG THIS SHIFT SEEMS, TO ME, TO BE PERFECTLY REASONABLE. IN CANNOT SEE A STRONG CASE FOR PREVENTING THE FURTHER EXTENSION OF THE, ALREADY EXISTING, DUAL CURRENCY SYSTEM. IT WOULD GIVE A WRONG SIGN, BY INDICATING LACK OF CONFIDENCE IN THE HK DOLLAR, TO REPEAL FORMALLY THE LAW AGAINST THE USE OF FOREIGN CURRENCY, BUT THAT LAW MIGHT HAPPHLY SE LEFT TO WITHER ON THE WINE BY BENIGN NEGLECT. SIMILARLY, IF THINGS WERE TO GO REASONABLY WELL, THERE WOULD BE A CASE FOR QUIETLY APPROACHING THE HKAB, SAY IN SIX MONTHS TIME, TO DISCUSS THE ABANDONMENT OF THE LR PROHIBUTION ON FOREIGN CURRENCY CHECKING
ACCOUNTS.
GIVEN THAT THE INTRODUCTION OF THIS SCHEME WOULD PROBABLY HAVE THE EFFECT BOTH OF RAISING INTEREST RATES, ESPECIALLY HK
DOLLAR RATES, AND ALSO OF PROBABLY SHIFTING THE BALANCE OF ADVANTAGE AWAY FROM FINANGHAL HINTERMEDIATION HN HK DOLLARS, THERE MUST BE
A CASE FOR CONSIDERING WHETHER THIS IS NOT A PARTICULARLY OPPORTUNE MOMENT TO SUGAR THE PILL BY REMOVING THE 10 PER CENT UNTEREST WITHHOLDING TAX, THOUGH THAT OBVIOUSLY HAS WNDER FISCAL IMPLICATIONS.
SECTION HM G. THE EXCHANGE LINK: FOREVER?
PROBABLY HT WOULD MAXIMISE CONFIDENCE TO INDICATE THAT THE EXCHANGE RATE LINK WWTH THE US DOLLAR WOULD LAST INTO THE WNDEFINITE FUTURE, THOUGH A NUANCE THAT IN THE UNLIKELY OCCURRENCE OF AN ADJUSTMENT THAT WOULD CERTAINLY BE AN APPRECIATION COULD BE HELPFUL. NEVERTHELESS CIRCUMSTANCES CAN BE ENVISAGED WHEN AN ADJUSTMENT OR EVEN A REVERSION TO A MANAGED FLOAT - POSSIBLY WITH THE EXCHANGE FUND AT THE SAME TIME ADOPTING MORE OF THE FEATURES OF A CENTRAL BANK MIGHT BE DESHRABLE. BUT, PERHAPS, ENOUGH
UNTO THE DAY (EXCLAM)
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