Negative Interest Rates A Comparison of the Hong Kong and Swiss Schemes

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:
Negative Interest Rates A Comparison of the Hong Kong and Swiss Schemes

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This chapter highlights two aspects of the negative interest rates schemes. First, the Swiss authorities had imposed a similar scheme when the Swiss franc had been under upward pressure in 1977–78, so a comparison of Hong Kong and Swiss schemes is useful. It would appear from these two cases that small, open economies with sound monetary arrangements are vulnerable to unwelcome speculative inflows whenever the currency to which they are pegged experiences a prolonged episode of weakness. The implication is that there must be enough flexibility in the smaller economy to absorb such pressures if the inflows are not to be permanently disruptive. Second, this was an interim attempt to deal with some of the side-effects of speculative pressure on the Hong Kong dollar before the introduction of the new “accounting arrangements” in July 1988 that gave the authorities more direct control over the money markets and more influence on the spot rate. The negative interest rate scheme was significant but ultimately of second-order importance in the restoration of credibility in Hong Kong's currency board.

Keywords: negative interest rate; Swiss franc; monetary arrangements; accounting arrangements; spot rate; money markets; currency board

Chapter.  3752 words.  Illustrated.

Subjects: Business and Management

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