The responses of Mr. Eric Fan Hung Ling were just restatements of the Government positions when he had an interview with Allen Li on Cable TV last Saturday. Among his responses were topics on Competition Law,the nurturing of the political talents in Hong Kong and the Pegged Currency Rate System.
Today, may I put aside the Competition Law and the nurturing of our future political talents and focus my views on the pegged rate system in Hong Kong.
More than twenty fours years have gone, we are now still functioning on the pegged rate system initiated by our former Financial Secretary John Bremridge in 1983. According to Allen Li, he learned from Mr. Bremridge that the 7.8 was a wild guess by taking the simple average of 5.6 and 10 to one US dollar. The main concern at that time was purely for political reason in bid to stem the heavy out flux of capital in the run up to 1997.
I do admit the pegged rate system had its own merits and let Hong Kong had the plain sailing during our most difficult time in the Asian Financial Crisis and SARs. But now I wonder should we have an open mind in view of the rapid changing of our economy eleven years after the reversion of Hong Kong Sovereignty back to the China.
For many years, when there were speculation on the HK dollars, I have been repeatedly asked by others if there could be delink of Hong Kong Dollar and every time my answers were the same-NO. If there was a delink, it must be related to inflation or recession.
The recent rampant inflation is really hit us now and it seems it is a hollow that we cannot see the bottom. The current inflation has caused hardship not just to the lower class income group but now is moving up the way to the middle class. The Government should take this issue seriously, otherwise it is going to be a serious problem to Hong Kong. The basic causes of inflation are due to sky high oil prices and the persistent strengthening of the Renminbi. I understand oil prices are global issue that we can do little about it but Hong Kong Dollar is a very local issue that can be decided by our Government.
Mr. Fan said that the maintaining of the 7.8 is the policy of the Government and afraid if there are any changes of our currency system could lead to heavy speculation that the Government does not want to see. I have serious doubts on these implications rather on Mr. Fan himself as he is simply a spokesman to relay the thinking of the Government.
To be a responsible Government, it should always be in position to review and adjust its policy to the overall goodness of the Hong Kong People. As the rampant inflation is threatening us, Hong Kong Government should not take an inactive role and sit there to do nothing. Our weak currency is not just only because of the weak US dollar but also the very strong RMB that we relied heavily to import our basic stuffs from China.
I do admit any changes could bring about risks but wonder risks could be managed in a controllable way. May I suggest Hong Kong Government and HKMA should study if to broaden the currency band of US dollars by stages-for 3% widening of band every six months interval until the HKD are at par with RMB. You might ask why 3% and on 6 months interval and my answers are 3% is the acceptable margin for business and external trade risks and 6 months could provide some good indications both from the performance of the stock market and the performance of the economy. I have confidence the risks of my suggestions are low as it is not a radical change instead it is just a gradual widening of our pegged rate targets and monitoring on an ongoing basis until to the situation that we are comfortable with the imported inflation from China.
I have to remind the Government that confidence of a currency is difficult to build but could be wiped out easily overnight. No matter how big is our currency reserve, it could bankrupt a Government. So, preemptive measures have to be taken before it is too late to reverse. Mr. John Bremridge had the bold and courage twenty years ago, why not our Financial Secretary of late and Mr. Yam could have the same.
Please send e-mail to schan033@gmail.com for comments.
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