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BUT, IT'S A RISK WORTH TAKING. AS Y.C. JAO, AN ECONOMIST AT THE UNIVERSITY OF HONG KONG SAYS: QUOTE WE HAVE TO SAVE THE DOLLAR. IF THE DOLLAR 4S GONE, HONG KONG IS FINISHED UNQUOTE.
THE DOLLAR'S BIGGEST PROBLEM RIGHT NOW HSN'T ECONOMIC, BUT POLITICAL. SHNO-BRITISH TALKS ON WHAT HAPPENS AFTER THE BRITAIN'S LEASE ON MOST OF THE TERRITORY RUNS OUT IN 1997 APPEAR TO BE STALLED. CHINA HAS MADE CLEAR HTS INTENTION TO TAKE BACK HONG
KONG BY THAT DATE.
POLITICAL FEARS ARE LARGELY OUT OF THE GOVERNMENT'S CONTROL. BUT MIT MS TAKHING THE RIGHT STEP EN EXPLORING WAYS OF REGAINING THE GRASP OF THE MONEY SUPPLY.
RAPID MONEY GROWHTH IN RECENT YEARS LED TO BALLOONING EXPANSION AN BANK CREDHT. THAT FUELED ECONOMIC GROWTH, BUT IT ALSO INCREASED INFLATION AND PUSHED DOWN THE DOLLAR. THOUGH THE DOLLAR HAS PLUMMETED RECENTLY, UT HAS BEEN ON A DECLINE SINCE 1979.
TO BE SURE, A WEAK CURRENCY HELPS EXPORTS. BUT IT ALSO PUSHES UP THE PRICES OF IMPORTED CONSUMER GOODS. ECONOMISTS PREDICT DOUBLE-
DIGHT INFLATION THIS YEAR AND EVEN HIGHER PRICES WHEN THE FULL
IMPACT OF THE DOLLAR'S DEPRECHAT NON REACHES THE RETAIL LEVEL.
THE HONG KONG ECONOMY HAS REBOUNDED SMARTLY OUT OF THE RECESSION.
EXPORTS ARE UP, BUT THE INCREASED FOREIGN-EXCHANGE EARNINGS AREN'T HELPING THE HONG KONG DOLLAR. THIS IS BECAUSE MANY EXPORTERS, FEARING FURTHER DEPRECIATION OF THE LOCAL UNIT, KEEP THEIR EARNINGS
IN FOREIGN CURRENCHES AND BORROW TO FINANCE LOCAL OPERATIONS.
RAISED INTEREST RATES
WHEN THIS HAPPENED BEFORE, THE GOVERNMENT SIMPLY RAMSED INTEREST
RATES TO LURE EXPORTERS' MONEY BACK TO HONG KONG. BUT BECAUSE OF THE GROWING POLITICAL UNCERTAINTY, THIS DOESN'T WORK ANYMORE.
SEVERAL SUBSTANTIAL INTEREST-RATE INCREASES THIS YEAR HAVEN'T
DONE MUCH TO HELP THE DOLLAR.
OCCASIONALLY, THE GOVERNMENT BUYS HONG KONG DOLLARS WITH TS FOREIGN-CURRENCY RESERVES TO SMOOTH OUT WIDE EXCHANGE-RATE
FLUCTUATIONS. BUT IT DOESN'T HAVE SUFFICIENT RESOURCES TO WAGE
A LONGTERM WAR TO PROP UP THE DOLLAR.
THE OLD EXCHANGE-FUND SYSTEM HELPED THE DOLLAR WITHSTAND A SEVERE
POLITICAL TEST IN THE LATE 1960S, WHEN THE CULTURAL REVOLUTION
IN CHINA SPREAD FEAR AND PANIC ACROSS THE BORDER TO HONG KONG. THE LOCAL UNIT STOOD FIRM. WHATEVER ELSE HAPPENED, PEOPLE DON'T QUESTION THE INTEGR+TY OF THE HONG KONG DOLLAR.
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