The Stabilisation of the Hong Kong Dollar
The Stabilisation of the Hong Kong Dollar
November–December 1983
This chapter looks back on how the Hong Kong dollar was stabilised in October 1983. It presents a combination of theoretical discussion and historical narrative of the events between late September and mid-October when the new scheme was adopted. It examines why the “interest rate weapon” failed, and discusses some of the international political events (the Sino-British negotiations over the future of Hong Kong) and local dramas (the run on the supermarkets) that formed the background to the currency crisis. It also discusses important issues in currency stabilisation such as the choice of monetary standard, whether to adopt partial or full convertibility of HKD banknotes to USD at the fixed rate, the choice of currency, and the choice of exchange rate. It also outlines the institutional arrangements of the new scheme, anticipating some of the later discussion of the cash arbitrage process.
Keywords: Hong Kong dollar, interest rate, Sino-British negotiations, currency stabilisation, stabilisation, monetary standard, HKD banknotes, exchange rate, cash arbitrage
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