Hong Kong Defends Currency Link With U.S. Dollar

Hong Kong has not taken unfair advantage of its currency’s link with the U.S. Dollar, Hong Kong monetary affairs secretary David Nendick told the annual meeting of the Asian Development Bank here.

He said: “We have taken the rough with the smooth, having to accept a downward adjustment of our economy in 1985 following a period when the U.S. Dollar was clearly overvalued in world terms, but benefiting as that currency subsequently declined.” He said that since the establishment of the link in 1983, Hong Kong’s trade had been broadly in balance. This year a modest deficit was expected.

“Under the link, Hong Kong’s entirely free and open economy continues to adjust quickly to any external imbalances, but the burden of adjustment now falls almost entirely on our domestic interest rates, money supply and price levels,” Nendick said.

“The relative volatility in these domestic variables is the price we pay for the stability of our currency against the U.S. Dollar,” he said.