Sage-Tips

Should Hong Kong maintain a linked exchange rate system?

It is suggested that in order to serve the best interest of Hong Kong, it should not maintain the linked exchange rate system and should switch to the managed floating exchange rate system.

What exchange rate does Hong Kong use?

Hong Kong uses a linked exchange rate system, trading since May 2005 in the range US$1:HK$7.75–7.85. Apart from its use in Hong Kong, the Hong Kong dollar is also used in neighbouring Macau. It is pegged at 1 Hong Kong dollar to 1.03 Macanese patacas, and is generally accepted at par or MOP 1.00 for retail purchases.

What are some advantages and disadvantages of a fixed exchange rate system?

Fixed Exchange Rate System: Advantages and Disadvantages

• (i) Elimination of Uncertainty and Risk:
• (ii) Speculation Deterred:
• (iii) Prevention of Depreciation of Currency:
• (iv) Adoption of Responsible Macroeconomic Policies:
• (v) Attraction of Foreign Investment:
• (vi) Anti-inflationary:
• (i) Speculation Encouraged:

Does Hong Kong have a fixed exchange rate?

Since 5 September 1998, the HKMA has provided a explicit convertibility undertaking to all licensed banks in Hong Kong to convert Hong Kong dollars in their clearing accounts into US dollars at the fixed exchange rate of HK$7.75 to US$1.

What is Hong Kong aggregate balance?

The aggregate balance refers to the sum of the balances in the clearing accounts maintained by the banks with the Hong Kong Monetary Authority (HKMA), representing the interbank liquidity.

Will HKD peg break?

It is unlikely for the HK dollar to be unpegged from the US dollar, says Joseph Yam. Former chief executive of the Hong Kong Monetary Authority Joseph Yam Chi-kwong said it was unlikely for the United States to break the peg that tied the Hong Kong dollar to the US dollar.

Is Hong Kong cheaper than India?

India is 70.9\% cheaper than Hong Kong.

What are the advantages of exchange rate?

The advantages of a fixed exchange rate include:

• Providing greater certainty for importers and exporters, therefore encouraging more international trade and investment.
• Helping the government maintain low inflation, which can have positive long-term effects such as keeping down interest rates.

What is the advantages of fixed exchange rate system?

A fixed exchange rate helps to ensure the smooth flow of money from one country to another. It helps smaller and less developed countries to attract foreign investment. It also helps the smaller countries to avoid devaluation. Many countries that operate of their currency and keep inflation stable.

When did Hong Kong adopt the linked exchange rate system?

As a response to the Black Saturday crisis in 1983, the linked exchange rate system was adopted in Hong Kong on October 17, 1983, under the recommendation of Y.C. Jao, through the currency board system.

What is the HKD/USD exchange rate system?

It is the exchange rate system implemented in Hong Kong by Honorary Vice-President at the University of Hong Kong, Professor Y.C. Jao, to stabilise the exchange rate between the Hong Kong dollar (HKD) and the United States dollar (USD).

What happens when the market rate of Hong Kong dollar increases?

When the market rate is below 7.80, the banks will convert US dollars for Hong Kong dollars from the HKMA; Hong Kong dollar supply will increase, and the market rate will climb back to 7.80. The same mechanism also works when the market rate is above 7.80, and the banks will convert Hong Kong dollars for US dollars.

What is the difference between fixed and fixed exchange rate systems?

Unlike a fixed exchange rate system, the government or central bank does not actively interfere in the foreign exchange market by controlling supply and demand of the currency in order to influence the exchange rate.