Study On The Peg Rate Sysetm Of Hong Kong

For twenty years, Hong Kong has been implementing linked exchange rate (pegged rate) with USDollars. The question whether to maintain this policy or not has always been a topic for dispute. However, within two years after the Asian financial crisis in 1997, Hong Kong dollar was several times being attacked, which affected profoundly the economy of Hong Kong. Therefore, another round of discussion as to whether the peg policy should be abolished or not took place again. Nevertheless, governmental authorities and the beneficiaries of peg policy still stood up for this policy although apparently it is not suitable for Hong Kong any more. The thesis, looking back at the situation of Hong Kong in recent years as well as at the present, tries to analyze to see if the peg policy is still applicable to Hong Kong.The contents and structure of this thesis consist of the following chapters:Chapter 1 introduces the history and development of exchange rate; various types of exchange rate systems with their relevant advantages and disadvantages; the "father" of peg policy, i.e. Currency Board Arrangement, the problems with which the countries implementing this arrangement were confronted.Coming to the theme of the thesis, chapter 2 introduces the development of the financial system and exchange rate system of Hong Kong; the exchange rate system used by Hong Kong before; the reasons for implementing the Peg as well as how this system works in the financial market.Following the subject on Chapter 2, chapter 3 analyses in different aspects the influence on Hong Kong financial structure with the implementation of Peg; the usual tactics taken by Hong Kong Monetary Authority to fight against those international speculators who tried to attack Hong Kong dollars; the cause of negative interest and its influence on economy and society.Chapter 4 elaborates the problems with which Hong Kong dollar was confronted after the Asian financial crisis in 1997 and 1998 and the steps taken by Hong Kong government (1st step to 7th step); Hong Kong governmentinterfered with the financial market and how they did, analysing the results and consequences of their interference.Chapter 5 examines in details the advantages and disadvantages of Peg, its influence on economy as well as the consequences. Hence, this is the critical part of the analysis presented by this thesis..Chapter 6 elaborates the economic difficulties faced by Hong Kong at present, eg deflation, unemployment, financial deficit etc.; explains that no effective solutions could be applied so long as the peg system is still in force.In conclusion to the analysis on the previous chapters, chapter 7 suggests that the peg system should be abolished for the reasons that the paces of economic growth in Hong Kong and USA are different, therefore, Hong Kong dollar should be set free to reflect its real value; taking a long view of the effect on economy, this chapter also puts forward a suggestion that Reminbi can, in the near future, be the legal currency of Special Administrative Regions.