By Saikat Chatterjee
HONG KONG, Oct 14 (Reuters) - Hong Kong has no immediateplan to adopt the Chinese currency as an alternative to its pegto the U.S. dollar even though the city is the key hub forwidening yuan usage in global trade, Hong Kong's central bankchief said on Monday.
In an article posted on the Hong Kong Monetary Authority'swebsite to mark the 30th anniversary of the Hong Kong dollar'spegging to the U.S. currency, Chief Executive Norman Chandefended the city's policies on the dollar peg.
"If the anchor currency were changed to the renminbi, theExchange Fund would have to hold nearly 2 trillion yuan ($327.4billion) worth of assets, which far exceeds the amount ofrenminbi assets in the offshore renminbi market presently inexistence," Chan wrote.
"Therefore, it is too early to consider the use of therenminbi as our anchor currency while it is not yet freelyconvertible and the capital account of the Mainland is still notfully liberalised," the HKMA chief said.
His article can be found at:
Chan's comments come at a time property price inflation inHong Kong is rampant and the city's strengthening ties to themainland have raised questions about the local dollar's future.
China's push to promote its currency ininternational trade has seen the renminbi overtake the localHong Kong dollar in trading volumes in the globalcurrency market. Growing numbers of multinational companies aretapping the offshore yuan bond market to finance operations onthe mainland.
Chan also pointed out the impact a stronger Hong Kong dollarwould have on the local economy if it was pegged to the yuan.The corrosive effects of a stronger currency on its exporterswould far outweigh the benefits to imports andsubstantially weaken the overall competitiveness of the economy,he said.
On Monday, the Chinese currency had a record high close of6.1079 to the U.S. dollar. In comparison, the Hong Kong dollaris pegged to the U.S. dollar on a fixed exchange rate of HK$7.8per dollar and allowed to fluctuate in a tiny 7.75 - 7.85 band.
"As Hong Kong's labour productivity growth is much slowerthan that of the Mainland (our estimates suggest an averageannual rate of about 3-4 percent over the past ten years forHong Kong versus almost 10 percent for the Mainland), we wouldhave to go through the pain of pay cuts and deflation before ourcompetitiveness could be restored," Chan wrote.
US$1 = 6.1079 yuan
- Hong Kong Monetary Authority
- Hong Kong
- Hong Kong dollar