Hong Kong's Financial Secretary John Tsang Thursday said the government sees no need and has no intention to change the Linked Rate System, which has been tested through different economic cycles and financial crises, and has continued to work well for the city.
Releasing an article on Thursday when the 30th anniversary of the system was marked, the city's financial chief said the Hong Kong dollar's peg to the U.S. dollar has been the cornerstone of Hong Kong's monetary and financial stability.
In 1983, when Hong Kong had a floating exchange rate system, the Sino-British negotiations on the future of Hong Kong were going, and there was rapid deterioration in market confidence over the Hong Kong economy and the Hong Kong dollar, Tsang recalled the picture of the panicked society at that time, when he was a green civil servant working for district community development.
It was against this background that the peg was introduced, he said, the community calmed down after the system was put in place and the Hong Kong dollar was effectively stabilized.
"The system has successfully maintained exchange rate stability in the past three decades and has provided a stable monetary and financial environment that is crucial to the trade-dependent Hong Kong economy," he said.
The stable exchange rate has provided a favorable environment for Hong Kong to develop into an international trading hub, and an important platform for our development as a financial center.
The stable monetary environment provided by the system has also been crucial to supporting economic growth in the past three decades, with Hong Kong's GDP increased by nearly 10 times during this period and our per capita GDP has reached 290,000 HK dollars (about 37,000 U.S. dollars) per annum.
"With the upgrading of our credit rating to AAA in 2010, Hong Kong is one of the 14 economies in the world to have achieved that grade," he added.
While some people think the system is the main culprit in Hong Kong's recent asset price inflation brought about by the quantitative easing in the US, Tsang said, no exchange rate regime is perfect, but the linked rate system has helped minimizing the shocks brought about by the spillover effect of the monetary policies of the major economies.
He said, Hong Kong still faces many external challenges ahead. In particular, the exit from quantitative easing in major economies may result in volatile fund flows.
"We are upholding the system not because we just want to maintain the status quo. More importantly, we are doing so because we strongly believe that it is still the most appropriate monetary system for Hong Kong in light of the challenges ahead," he said. ( 1 U.S. dollar = 7.8 HK dollars)
Source: Xinhua
