Chapter

The Operation of the New Exchange Rate Mechanism

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/9789622098909.003.0008
The Operation of the New Exchange Rate Mechanism

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By late January 1984, three months from the implementation of the new currency board in October 1983, the linked rate system for the Hong Kong dollar had settled down and appeared to outsiders to be working tolerably well. This chapter explains why the system is so resilient, and examines the operation of the scheme with respect to the behaviour of interest rates in the Hong Kong dollar money market, the behaviour of the money supply since the implementation of the new scheme, and the likely behaviour of the monetary and other nominal variables under alternative assumptions about the real economy. It also examines some possible scenarios for the longer-term adjustment of the Hong Kong economy under a currency board.

Keywords: currency board; linked rate system; Hong Kong dollar; interest rates; money supply

Chapter.  5386 words.  Illustrated.

Subjects: Business and Management

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