Chapter

Hong Kong's Financial Crisis Hong Kong's Financial Crisis History, Analysis, Prescription

John Greenwood

in Hong Kong's Link to the US Dollar

Published by Hong Kong University Press

Published in print November 2007 | ISBN: 9789622098909
Published online September 2011 | e-ISBN: 9789882207004 | DOI: http://dx.doi.org/10.5790/hongkong/9789622098909.003.0005
Hong Kong's Financial Crisis Hong Kong's Financial Crisis History, Analysis, Prescription

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This chapter analyzes Hong Kong's monetary problems and the growing problem of inflation since 1974. It argues that the Hong Kong government could not stop the currency slide through intervention in the foreign exchange markets because the government had been treating the symptoms of monetary and financial problems, instead of dealing with the underlying causes. It begins by discussing the four major instruments of monetary policy (liquid assets, interest rates, government borrowing scheme, intervention in foreign exchange policy) and explains why each of them did not work. It concludes by reviewing the two key proposals for reforming the monetary system — either to control the quantity of money by converting the Exchange Fund, Hong Kong's monetary authority, into a central bank, or to manage the exchange rate with a central bank or modified Exchange Fund.

Keywords: inflation; currency slide; foreign exchange markets; liquid assets; interest rates; government borrowing scheme; foreign exchange policy; Exchange Fund; central bank

Chapter.  19338 words.  Illustrated.

Subjects: Business and Management

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