Research On Hong Kong's Linked Exchange Rate System

Hong Kong has gone through different ways of exchange rate systems. The current linked exchange rate system was launched in 1983, in light of providing a confidence-boosting gesture lo stabilize the unclear economic and political future of Hong Kong Under the implementation of the linked exchange rate system, the economy of Hong Kong rapidly develops and becomes one of the major international financial center. The stabilized exchange rate and its promised exchange deed have created a competitive condition for Hong Kong to be prosperous. Besides it helps the development of trade, it also pushes up the Hong Kong economy that a lot of funds are attracted to flow into Hong Kong. Indeed, under the linked exchange rate system, the mission of the monetary policy is to stabilize the exchange rate but not to stabilize the price. To a certain degree, the linked exchange rate system enhanced the inflation and made more bubbles to the assets. In 1987 and 1988, Hong Kong dollar was attacked severely because offinancial crisis. The government applied a series of defending strategies to protect the linked exchange rate system. Nevertheless, the economy of Hong Kong was being disturbed The prices of the stock exchange market and the real estate market were drastically dropped down. At that time, the general public has drafted a lot of proposals about how to improve the linked exchange rate system. And finally the Hong Kong Monetary Authority issued a package of 7 technical measures to strengthen the currency board arrangements and it is still being used. By comparison of djfferent proposals and through a thorough literature research, it is concluded that at present time the Hong Kong government has to carry on the linked exchange rate system. Furthermore, in order to improve the linked exchange rate system, consideration can be taken on equilibrium exchange rate and at suitable time linking to another money with closer relationship to Hong Kong economy. The purpose of the suggestion is to let the linked exchange rate system develop from time to time.