Hong Kong legislators dropped plans Friday to review the impact of
the region's 19-year-old currency peg to the US dollar after
reports of the study sent interest rates higher.
"I
support the idea that the legislature should be cautious," said
Emily Lau, leader of the opposition Frontier Party, who originally
proposed the study.
She spoke after the Legislative Council voted unanimously to kill
the idea.
Hong Kong money market rates rose after the Chinese-language
Apple Daily reported the review may lead to peg's
abolition.
The Hong Kong Monetary
Authority, the de facto regional central bank, responded that
the government has "no plan to change the link," under which there
are 7.8 Hong Kong dollars to the US dollar.
"The government of the Hong Kong SAR has clearly stated that it has
no plan to change the linked-exchange-rate system. The link has
served Hong Kong well over the last 19years and has been an
important factor in Hong Kong's economic success," said a statement
from the Hong Kong Monetary Authority.
The peg has been blamed for thwarting Hong Kong's recovery by
making exports more expensive than those of Asian competitors whose
currencies have fallen against the dollar.
The region is suffering from record unemployment, almost four years
of deflation and a real-estate market yet to rebound from losing
more than half its value in 1997-98period.
"Poor economic conditions have led more and more people to agree
that the peg is part of reason for the city's deflation and lack of
competitiveness," said Andrew Fung, northeast Asia treasurer of
Commonwealth Bank of Australia.
Lau said she was surprised by the fuss kicked up by the
proposal.
"Lawmakers are just not familiar with the exchange system of Hong
Kong," said Daniel Chan, an economist at Dao Heng Bank, " So I
don't think this will have any pressure on the link -though the
traders will take opportunities and try their best to do
something."
(eastday.com September
21, 2002)