On Fri, 16 Jan 1998, Tom Walker cross-posted From Erdman:
> "Next to go will be the peg linking the Hong Kong dollar to the U.S. dollar
> at HK 7.74. This for two reasons. As a result of Asian devaluations now
> averaging almost 50 percent, Hong Kong's competitive position in export
> markets where its products often go head to head against goods
> produced in Southeast Asia, South Korea and Japan, has been severely
> undermined.
The peg is going to go, and probably sooner rather than later. This isn't
the end of the world or anything, it'll just be replaced by a floating/
managed currency, like any other First World country. The spectacle of
the HK authorities propping up the dollar peg via high interest rates is,
I suspect, more than just a bizarre relic of British rule (though it's
true countries like Singapore and Taiwan do seem to worship at the
altar of the foreign exchange markets with the same fervor 19th century
Anglo-Americans displayed vis-a-vis gold), it's also a prop to rentiers
and punters. Maybe this explains the whole HK stock crash: once profit
margins started to fall on their mainland investments, the rich began to
sell their real estate holdings, essentially converting HK dollars into US
dollars, well in advance of the herd (it's the business of the rich always
be the first to know these things, otherwise they don't stay rich very
long). This probably spilled over into pressure on the HK peg, which then
pushed interest rates higher, which is putting further pressure on profit
margins, etc. etc. down into the usual recessionary spiral.
And I'd bet a pile of yen that Jiang Zemin is not going to let
the Bank of China, which co-manages the HK currency, strangulate a
mainland economy already suffering from overcapacity and a spreading
Thai-style credit implosion.
-- Dennis
