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foreign economic policies. Though not exclusively, the
black market for foreign exchange transactions centres
around the Hong Kong dollar which is now in wide. circulation (4)
In the past few months the black market
exchange rate of the Hong Kong dollar for Renminbi was
reported to be in the region of Rmb 80-85/HK$100, more
than 70% higher than the official rate of
Rmb 47.7/HK$100. However, most recently, the black market
exchange rate of the Hong Kong dollar has improved to around Rmb 75-80/HK$100, or about 60% higher than the
official rate, due to stronger demand for Renminbi as more
Hong Kong people visit China during the summer holidays.
16.
(v) Prospect for relaxing or abolishing foreign
exchange control in China
As indicated by the black market exchange rate,
the official exchange rate of the Renminbi is seriously
over-valued. The Chinese authorities clearly fear that
the abolition of foreign exchange controls would lead to a
sharp depreciation of the Renminbi and a rapid depletion
of the state's foreign exchange reserves as traders and
investors rushed to convert their Renminbi holdings into foreign currencies. Moreover, a sharp depreciation of the
Renminbi would raise the repayment and servicing costs of
China's foreign debt substantially. Such developments would have drastic consequences for the country. Complete
abolition of foreign exchange control in China therefore
appears very unlikely for many years to come.
(4) It is estimated that around one-fifth of all the
Hong Kong dollar notes issued, amounting to about HK$4 billion, are now in circulation mainly from hand to hand within China.
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