Comparison of CB between Argentina and Hong Kong
Comparison of CB between Argentina and Hong Kong
HK main event
In 1983, Hong Kong established her Currency Board. Hong Kong dollar (HKD) has pegged with the US dollar (USD) at a rate of USD1 to HKD7.8. The major event that assaulted Hong Kong CB was the 1997 Financial Crisis. During that crisis, speculator attacked HKD by short selling them. Speculators used hedge funds and attacked the Hang Seng Index (HSI) at the same time. Although the HK government already imposed penalty on “repeated borrowers” (Ng,1999) leading to a high HIBOR rate, the HKMA decided to buy stock through the Exchange Fund to fight with speculators. At last, the HKMA used HK$120bilion to make the HSI back to 564 points. On the August 28 1998, the HSI finally turn back to the normal.
HK Comparison of Statutory Provisions
For Hong Kong, the anchor currency is the USD. The official exchange rate is at a fixed rate of HKD$7.8 to USD$1. “The Hong Kong dollar banknotes are fully backed by US dollars held by the Exchange Fund.” (HKMA) There is no legislation which governs the functions of central bank. Since HKMA promised to be the lender of last resort, the assets of Exchange Fund maintain the stability of CB and the creditability of Hong Kong Currency Board is relatively higher than Argentina’s one.
3 Conditions using CB to stabilize economy
According to Max Corden, he stated that Currency Board should be appropriately used when a place is having inflation problem, very open economies and financial minister determination. (Mason & Kulkarni, 2006)
1. Having inflation problem
In Hong Kong, there is inflation problem before the establishment of CB. With reference to graph 1, the inflation rate was high at about 12% in 1982 and 10% in 1983. After the imposing CB, the inflation rate is relatively lower than before 1983 at about 5% in 1985 and 3% in 1986.
Graph 1
2. Very open economies
Hong Kong is a very open economy. It can be truly reflected in the export to GDP ratio. From 1970 to
HK main event
In 1983, Hong Kong established her Currency Board. Hong Kong dollar (HKD) has pegged with the US dollar (USD) at a rate of USD1 to HKD7.8. The major event that assaulted Hong Kong CB was the 1997 Financial Crisis. During that crisis, speculator attacked HKD by short selling them. Speculators used hedge funds and attacked the Hang Seng Index (HSI) at the same time. Although the HK government already imposed penalty on “repeated borrowers” (Ng,1999) leading to a high HIBOR rate, the HKMA decided to buy stock through the Exchange Fund to fight with speculators. At last, the HKMA used HK$120bilion to make the HSI back to 564 points. On the August 28 1998, the HSI finally turn back to the normal.
HK Comparison of Statutory Provisions
For Hong Kong, the anchor currency is the USD. The official exchange rate is at a fixed rate of HKD$7.8 to USD$1. “The Hong Kong dollar banknotes are fully backed by US dollars held by the Exchange Fund.” (HKMA) There is no legislation which governs the functions of central bank. Since HKMA promised to be the lender of last resort, the assets of Exchange Fund maintain the stability of CB and the creditability of Hong Kong Currency Board is relatively higher than Argentina’s one.
3 Conditions using CB to stabilize economy
According to Max Corden, he stated that Currency Board should be appropriately used when a place is having inflation problem, very open economies and financial minister determination. (Mason & Kulkarni, 2006)
1. Having inflation problem
In Hong Kong, there is inflation problem before the establishment of CB. With reference to graph 1, the inflation rate was high at about 12% in 1982 and 10% in 1983. After the imposing CB, the inflation rate is relatively lower than before 1983 at about 5% in 1985 and 3% in 1986.
Graph 1
2. Very open economies
Hong Kong is a very open economy. It can be truly reflected in the export to GDP ratio. From 1970 to