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Hong Kong's Link to the US Dollar

Origins and Evolution

John Greenwood

Publication Year: 2008

This book covers the origins of Hong Kong’s currency crisis in 1983, the initial resolution of the crisis by creation of a currency board, the subsequent problems leading to the Asian financial crisis of 1997-98, and the later reforms. The Epilogue traces Hong Kong’s monetary developments between 1990 and 2005.

Published by: Hong Kong University Press, HKU

HONG KONG'S LINK TO THE US DOLLAR - Origins and Evolution

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Copyright

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CONTENTS

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pp. v-vi

APPENDICES AND BOXES

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pp. vii-viii

CHARTS, TABLES AND FIGURES

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pp. ix-xi

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FOREWORD

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pp. xiii-xv

"The monetary crisis in Hong Kong, starting in September 1982, following Mrs. Thatcher’s failed visit to Beijing, and culminating in September/October 1983, threatened both the economic and the political identity of this unique city. It was, of course, primarily a politically induced crisis. Mrs. Thatcher had gone to meet Deng Xiaoping to try to renegotiate and to extend the lease on the New Territories of Hong ..."

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INTRODUCTION

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pp. 1-4

"This book contains a selection of articles written in the bimonthly journal Asian Monetary Monitor during the years 1981–89. The focus of the journal, as its title implies, was the analysis of contemporary monetary issues in the East Asian economies from Japan down to New Zealand and across to India. The particular selection in this book concentrates on Hong Kong’s monetary crisis and its solution during the decade of the 1980s. Chapters ..."

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CHAPTER 1 CURRENCY ON THE SKIDS

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pp. 5-14

"Starting in January 1977 the trade-weighted index of the Hong Kong dollar began a persistent decline lasting almost four years, interrupted only by a brief upturn in 1979–80. This shows that the currency depreciation began long before the Sino-British negotiations over the future of Hong Kong in 1982–83, and could not be due simply to a flight of capital following Margaret Thatcher’s visit to Beijing in September 1982. Considering the ..."

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CHAPTER 2 TIME TO BLOW THE WHISTLE

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pp. 15-35

"Between the publication of this article and the preceding one the HK$ had fallen further against the US currency. There could now be no escaping the conclusion that there was something seriously amiss with Hong Kong’s monetary arrangements. But, far from addressing the causes of the problem, the authorities appeared to be tackling only the symptoms by intervening in the foreign exchange markets to support the local..."

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CHAPTER 3 MONETARY DOWNTURN COMPOUNDS TRADE WOES

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pp. 37-50

"Between 1980 and 1982 the developed world experienced two back-to-back recessions, with the US having recessions from January 1980 to July 1980, followed by another from July 1981 to November 1982 according to the National Bureau of Economic Research. Not surprisingly this led to a sharp downturn in Hong Kong’s external trade, as reflected in the original title of this next article. Of more significance, perhaps, from the standpoint of ..."

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CHAPTER 4 HONG KONG’S FINANCIAL CRISIS History, Analysis, Prescription

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pp. 51-99

"In September 1982 Margaret Thatcher made her infamous visit to Beijing to discuss with Deng Xiao-ping and other Chinese leaders the future of Hong Kong after June 30th 1997, when the British government’s lease over Hong Kong’s New Territories was due to expire. From the viewpoint of the people of Hong Kong the visit went badly. Not only had Margaret Thatcher tripped and fallen on the steps of the Great Hall of the People in..."

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CHAPTER 5 HOW TO RESCUE THE HONG KONG DOLLAR

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pp. 101-135

"This is the article written at the height of the HK$ currency crisis in September 1983 that ultimately formed the basis for the government’s plan for a return to a currency board mechanism in October 1983. As a development of the arguments previously put forward in AMM for a reform..."

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CHAPTER 6 THE STABILISATION OF THE HONG KONG DOLLAR

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pp. 137-167

"This chapter looks back on how the HK$ was stabilised in October 1983. The six appendices (pp. 157–167) reproduce some of the key documents of record in the stabilization process, and a memorandum from the author addressed to the Financial Secretary dealing"

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CHAPTER 7 THE OPERATION OF THE NEW EXCHANGE RATE MECHANISM

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pp. 169-181

"By late January 1984, three months from the implementation of the new currency board in October 1983, the linked rate system for the HK$ had settled down and appeared to outsiders to be working tolerably well. The spot exchange rate was holding close to..." the offi cial parity of

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CHAPTER 8 WHY THE HK$/US$ LINKED RATE SYSTEM SHOULD NOT BE CHANGED

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pp. 183-202

"This article presents an analytical view of the benefi ts and costs of the move to a fixed exchange rate in October 1983, and then deals with three alternative proposals intended to solve Hong Kong’s monetary problems. Implicitly the point is that no system is perfect — there are costs..."

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CHAPTER 9 ADJUSTING TO THE LINK

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pp. 203-216

"This article, written two years after the linked rate had been established, attempted to provide an overview of how the economy was adjusting to the new framework. Section 1 addresses the adjustment of prices in Hong Kong relative to prices in the US and the..." OECD as a whole. Section 1

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CHAPTER 10 NEGATIVE INTEREST RATES A comparison of the Hong Kong and Swiss Schemes

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pp. 217-225

"It was not only the contributors to AMM who worried about the performance of the restored currency board mechanism. The authorities were clearly troubled by some elements of the new system. Although broader performance measures of the economy such as economic growth and infl ation were..."

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CHAPTER 11 INTERVENTION REPLACES ABBITRAGE The July Package of Monetary Measures

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pp. 227-247

"The July 1988 package of new accounting arrangements for the Hong Kong monetary system represented the first major change in the design of the system since 1983. These measures were the official response to some of the defects in the original template as set..." out in AMM, but they also set a new direction. In the early years after 1983 the authorities and the Hongkong and Shanghai...

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CHAPTER 12 THE IMPACT OF THE TIANANMEN SQUARE INCIDENT ON HONG KONG'S MONETARY SYSTEM

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pp. 249-257

"This final article from AMM describes the response of the currency board mechanism in Hong Kong, as amended by the new accounting arrangements of July 1988, to the crisis in Beijing surrounding the Tiananmen Square demonstrations of May/June 1989. Using..." the terminology of Chapter 7, there was both an “internal drain” (in the form of a withdrawal of funds from the Bank of China) and

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CHAPTER 13 EPILOGUE

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pp. 259-219

"The selected AMM articles in chapters 1–7 showed how the fundamental flaws in Hong Kong’s monetary system in the 1970s and 1980s were identified, brought to the notice of academics, bankers, investors and the Hong Kong authorities, and eventually addressed..." after the dangerous run on the currency in September

Index

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pp. 293-303


E-ISBN-13: 9789888052349
Print-ISBN-13: 9789622098909

Page Count: 320
Illustrations: 87 b/w charts, tables and illus
Publication Year: 2008

Research Areas

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Subject Headings

  • Hong Kong (China) -- Economic conditions -- 21st century.
  • Hong Kong (China) -- Economic conditions -- 20th century.
  • Monetary policy -- China -- Hong Kong.
  • Currency question -- China -- Hong Kong.
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