On HK Linked Exchange Rate System

I was planning to write an article to explain why the HK protestors have a very long shot to “move” the HK dollars and the Linked Exchange Rate System by their teeny tiny deposits. But I found that Professor Lui has explained this issue very well.

Note! The HK Linked Exchange Rate System is a de facto monetary system but not a simple exchange-rater-fixing control. The M0 supply of HK dollars is fully promised by the total amount the US dollar reserves at the ratio of 1:7.8. The fluctuation of the market exchange rate will directly change the quantity of the M0, which means the HK money issuing banks have incentives to buy or sell the currencies and maintain the rate fluctuate in a very narrow range.

The demands for more US dollar will directly shrink the quantity of the HK dollar, and the rising short-term interest rate will accelerate the process. Both will raise the exchange rate of the HK dollar. If every US dollar is taken away, there will be no HK dollars in the market at all. Here comes the problem: what currency a citizen must use to pay her tickets, punishments, taxes, and rents? There are always demands for HK dollars and people who have all US dollars in hands will have to bear the risk of loss. People will be forced to crazily trace the small quantity of the HK dollars.

following is Professor Lui’s statement:

“雷鼎鳴:「從2008年9月金融海嘯至今年6月,因為外國量化寬鬆政策,總共有價值等同12,861億港元的外資淨流入香港,這是筆數量驚人的巨款,它使到港元數量大增,外滙儲備也大漲,但同時推高了香港的樓價。這筆本來屬於熱錢的巨資一直賴在香港不走,直至去年3月左右開始,因美國加息香港不加,資金才稍有流出,但從貨幣基礎這一統計數據看,資金的流動基本上十分穩定。要發動港人港元買美金嗎?若想造成1997/98年亞洲金融風暴的效果,當年用30億港元左右的賭本去沽空已經可以,但今天聯繫滙率的制度早已改變,起碼要16,300億港元(亦即今天貨幣基礎的量)才可入場,否則並無能力使港元利率拋離美元利率,從而達到加強沽空的效果,索羅斯也遠遠未有這財力。要港人做嗎?這要發動100萬個家庭,每個家庭拋出163萬港元現金,買入20多萬美元才足夠。肯聽網上號召的,多半無甚積蓄,何來有百多萬元去炒賣?可以肯定,8月16日香港不會因網上的兩個號召而出現丁點的港元危機或銀行體制崩潰。」”

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