Analysis On "Adopting" Or "Aborting" Dollar Peg System In Hong Kong

Whenever Hong Kong experiences a financial crisis, review and debate on the dollar peg system emerge, however, the determination of Hong Kong government to defend the dollar peg system have never been shaken for the past twenty years.In an attempt to discuss the advantages and disadvantages of the varies exchange rate system and explain international widely adopted floating exchange rate system do not appeal the Hong Kong Government for the past twenty years, this essay will first examine factors affecting the exchange rate, then goes on discuss varies exchange rate arrangement that is to avoid those factors disturbing the economic development of a nation or region. At the same time, it reviews the evolution of Hong Kong exchange rate arrangement and the process of adopting dollar peg system.It is important to stress that this essay emphasis on the debate of the disadvantages of dollar peg system, especially the gain and loss when the Hong Kong Officials applied the dollar peg arrangement in defending the international speculators during the Asia Economic Turmoil, and issues arise on aborting or adapting the dollar peg following the economic recession after the economic crisis. Lastly, I conclude that dollar peg system is the only solution for the mini economic system of Hong Kong, provided the economy of Hong Kong has not regained stable growth, the free exchange of Renminbi has not implemented and series factors alike. And it can be concluded by the expression of reputed Hong Kong economist Steven Cheong "Under the present circumstance, be pegged and be relaxed".