The Impact of The Tiananmen Square Incident on Hong Kong'S Monetary System
The Impact of The Tiananmen Square Incident on Hong Kong'S Monetary System
May–June 1989
This chapter describes the response of the currency board mechanism in Hong Kong, as amended by the new accounting arrangements of July 1988, to the crisis in Beijing surrounding the Tiananmen Square demonstrations of May/June 1989. It argues that there was both an “internal drain” (in the form of a withdrawal of funds from the Bank of China) and an “external drain” (an outflow of funds through the sale of HK$ for foreign currencies). It also discusses how these events impacted the Hong Kong monetary system — from the response of the authorities, interest rates, and the spot rate for the HK$/US$ to the internal fund shifts and the outflow.
Keywords: currency board, accounting arrangements, Tiananmen Square, Bank of China, monetary system, interest rate, spot rate, internal fund
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