Abstract: Hong Kong economy
Keywords: linked exchange rate system/floating exchange rate system/rational expectation
First, the status quo of Hong Kong's exchange rate system
Hong Kong implemented the linked exchange rate system at 1983. At first, the main content was to fix the exchange rate between Hong Kong dollar and US dollar at 7.8: 1, so that the market exchange rate fluctuated within 2% of the predetermined official price. Under this system, there are two parallel foreign exchange markets in Hong Kong, namely, the open foreign exchange market formed by the exchange fund, note-issuing banks and other licensed banks due to note-issuing relationship, and the interbank cash foreign exchange market formed by note-issuing banks and other licensed banks due to currency exchange. Accordingly, there are two parallel exchange rates: official fixed exchange rate and market exchange rate. The operation of the linked exchange rate system is carried out by taking advantage of the competition and arbitrage activities of banks in the above-mentioned parallel markets, that is, the government maintains the linked exchange rate of the entire Hong Kong dollar system against the US dollar through exchange rate control of note-issuing banks; Through inter-bank arbitrage, the market exchange rate fluctuates around the linked exchange rate and approaches the latter.
At the beginning of the linked exchange rate system, Hong Kong's economy was traditionally closely linked with that of the United States, and residents' confidence in the Hong Kong dollar was based on their confidence in the US dollar. This institutional arrangement unifies the economic basis and confidence basis of the exchange rate system. But does this unity still exist today?
Judging from the current situation, the economic ties between the United States and Hong Kong are generally on the decline. The correlation coefficient of economic growth between the two places gradually decreased from an average of 0.75 in the 1970s to 0.5 in the 1980s, and further decreased to near zero in the 1990s. Comparatively speaking, the economic ties between Chinese mainland and Hongkong are deepening, and the correlation coefficient of economic growth between the two places rises to 0.76 between 1990 and 1997. Although this trend reversed after the 1998 financial crisis, on the whole, the economic ties between Hong Kong and Chinese mainland are getting closer and closer, and Hong Kong's economy is increasingly dependent on Chinese mainland's economy. (Note: Data sources: Hong Kong Census and Statistics Department, National Bureau of Statistics, US Department of Commerce, Bank of China International Forecast. )
Second, the advantages and disadvantages of the linked exchange rate system
Due to political factors, people are uncertain about the future of Hong Kong. The exchange rate of the Hong Kong dollar plummeted in the autumn of 1983. In order to restore residents' confidence in the Hong Kong dollar and stabilize the situation in Hong Kong, the linked exchange rate system was born. This exchange rate system linking the Hong Kong dollar to the US dollar has greatly enhanced the confidence of Hong Kong residents in the Hong Kong dollar. The advantages of the linked exchange rate system are as follows: 1. The fixed exchange rate system is suitable for small open economies. 2. Under the linked exchange rate system, the Hong Kong dollar is linked to the US dollar, which enhances people's confidence in the Hong Kong dollar, reduces exchange rate fluctuations caused by speculation, reduces the uncertainty of economic activities, and makes individuals, enterprises and governments have stable expectations, thus helping to reduce transaction costs. In addition, it can also restrain the government from prudent financial management. 3. The linked exchange rate system is very simple. Compared with other exchange rate systems, it is more operable. At the same time, the linked exchange rate system is a highly regulated financial system, and its operating rules can be supervised by the public.
However, the linked exchange rate system has not only brought huge benefits to Hong Kong, but also made Hong Kong pay a high cost. Especially today when the economic base deviates from the confidence base.
1. Under the linked exchange rate system, Hong Kong monetary authorities lost the independence of monetary policy. Take 199 1 ~ 1992 as an example. At that time, Hong Kong was troubled by high inflation and should have raised interest rates to curb inflation. However, at this time, the US economy was weak and the Federal Reserve kept cutting interest rates, so Hong Kong had to follow closely, starting with 19 1 and ending with 1992 * *. 199 1 year and 1992, the price increase calculated by the weighted consumption index reached a high level of 1 1.7% and 9.6% respectively.
2. The use of fiscal policy tools is restricted, which is not conducive to the government's macro-control of the economy. The fixed exchange rate clearly shows the government's intention to the public. In order to maintain this reputation, the government's fiscal policy is restricted, and the fiscal deficit policy cannot be used to regulate economic development, because the fiscal deficit reduces foreign exchange reserves, which are the basis for maintaining the linked exchange rate system. The reduction of foreign exchange reserves makes the linked exchange rate system questioned and worried. But the fact is that in order to speed up Hong Kong's economic recovery, the Hong Kong government has experienced a structural fiscal deficit for three consecutive years, which has objectively shaken the foundation of the linked exchange rate system.
3. Under the linked exchange rate system, the balance of payments cannot be adjusted by exchange rate changes, and the leverage of exchange rate is abandoned, and the balance of payments is an indispensable condition for maintaining the linked exchange rate system. Adhering to the linked exchange rate is not conducive to Hong Kong's adaptation to the complicated and changeable economic situation. In the past, Hong Kong's visible trade has been in deficit. Due to the development of intangible trade, the whole balance of payments is in a surplus state. Moreover, since the 1990s, Hong Kong's foreign trade surplus has been decreasing, which is related to the weakening of Hong Kong's external competitiveness and weak export growth. According to Marshall-Lerner clause, Hong Kong can improve its balance of payments by devaluing its currency. However, under the linked exchange rate system, the exchange rate is fixed, and Hong Kong cannot adjust the exchange rate to adapt to the changing economic situation.
4. The financial system is very fragile. Mainly reflected in two aspects: First, under the linked exchange rate system, the issuance of the base currency (figure) is backed by the corresponding US dollar foreign exchange. However, after the multiplier credit expansion of the commercial banking system, the amount of cash and deposits in circulation will greatly exceed the foreign exchange reserves. Theoretically, only when the Exchange Fund completely covers {Figure} instead of {Figure} can the speculative impact be completely avoided. If some external shocks shake public confidence, a credit crisis may occur in Hong Kong. Secondly, under the linked exchange rate system, there is no real central bank in Hong Kong. Once there is a banking crisis, there is no lender of last resort, which will lead to temporary difficulties in the operation of commercial banks and can not be solved in time, thus deepening the fragility of the financial system.
Three. On the Choice of Hong Kong's Future Exchange Rate System
Starting from the two basic factors of choosing exchange rate system, we will analyze the future trend of Hong Kong's exchange rate system in two parts. The first is short-term and long-term choice. For the choice of exchange rate system in these two periods, the academic views are relatively consistent, and we only make a simple explanation. As for the choice of medium-term (transitional) exchange rate system, there are many disputes in academic circles, which we will discuss in detail.
(A) the short-term and long-term choice of Hong Kong's exchange rate system
In the short term, the linked exchange rate system has a strong ability to resist external shocks, so it is very important to maintain the stability of the exchange rate system for Hong Kong, a small open economy that is greatly influenced by external factors. The linked exchange rate system has brought more benefits to Hong Kong than costs, which is the fundamental reason for continuing to implement the linked exchange rate system in the short term. Only from the perspective of cost-benefit balance in pure economics, Hong Kong should probably abandon the linked exchange rate system now. There is no such thing mainly because of the cost of institutional change. First of all, this kind of cost has the inertia of "path dependence" pegged to the exchange rate system, which makes the opportunity cost of giving it up too high. Secondly, the linked exchange rate system has caused unfair income redistribution to different economic entities in Hong Kong. Because adhering to the linked exchange rate system is beneficial to the assets of large movable property owners and major shareholders of listed companies from losses caused by exchange rate depreciation, this has formed an interest group. The change of exchange rate system needs to pay a high political cost and is finally surrounded by international hot money. Although in the Asian financial crisis, international hot money did not take much advantage in Hong Kong, but they did not give up. They are always staring at the linked exchange rate system and will launch a new round of attacks whenever they have the opportunity. Considering the above situation, the linked exchange rate system should be maintained in the short term.
In the long run, the Hong Kong dollar should be in line with the RMB and adopt a floating exchange rate system. This is because: First of all, in the long run, Hong Kong's economy will be more closely linked with the mainland, and this economic foundation determines that the Hong Kong dollar should be in line with the RMB. Second, residents' confidence in the Hong Kong dollar. The rapid development of mainland economy will make it a powerful economy in the world in the long run. If the RMB is freely convertible, the original obstacles will be cleared. The integration of Hong Kong dollar and RMB will completely unify the economic foundation and confidence foundation of Hong Kong currency, and Hong Kong will usher in a new golden age.
(B) the choice of Hong Kong's medium-term (transitional) exchange rate system
The medium-term choice should be a freely floating exchange rate system. The objective reasons for this choice are: 1. RMB is not freely convertible. The process of RMB free convertibility will be complicated and long. Until a series of domestic problems are solved, it is impossible for RMB to be freely convertible rashly. Hong Kong's economy will be more closely linked with the mainland economy. According to the economic basis of the choice of exchange rate system, Hong Kong dollar should implement the linked exchange rate system for RMB. However, since RMB is not freely convertible, this is impossible. 2. The deviation between economic foundation and confidence is getting deeper and deeper, and the cost of implementing the linked exchange rate system is getting higher and higher. Hong Kong's economy will be more dependent on Chinese mainland, while the Hong Kong dollar will still be pegged to the US dollar at a fixed exchange rate, and residents' confidence in the Hong Kong dollar will still be based on the US dollar. With the deepening of this deviation, the cost of implementing the linked exchange rate system is increasing, which will eventually exceed the income.
Not all countries have the conditions to implement a floating exchange rate system, and rashly implementing a floating exchange rate system will not only fail to enjoy its benefits, but will damage the national economy. Hong Kong's floating exchange rate system in the medium term has a realistic basis. One reason why the linked exchange rate system can't move in the short term is that the economic situation in Hong Kong is not very good now, and the global economic situation is relatively depressed. To implement the floating exchange rate system, we must first have a better macroeconomic environment. At this time, even if international hot money wants to make waves, there is no way to take advantage of it. Abandoning the linked exchange rate system can only be voluntarily abandoned by the Hong Kong Government, and this opportunity for abandonment must not be given to speculators. In the medium term, Hong Kong's economy may reach a relatively good state. At that time, we can consider changing the linked exchange rate system to a floating exchange rate system. The reason for this is the following：
1. The first condition for floating exchange rate system is rational expectation. The theory of rational expectation has two characteristics: first, people's rational expectation of future economic changes always uses all available information as effectively as possible, rather than relying only on past experience and economic changes. Second, the rational expectation theory does not rule out the uncertain factors in real economic life, nor does it rule out that the random changes of uncertain factors will interfere with the formation of people's expectations and make people's expected values deviate from the actual values. However, people will not make systematic mistakes when predicting the future. If people's expected behavior follows rational expectations, then floating exchange rate system is the first choice, because under floating exchange rate system, the central bank has no obligation to maintain a certain exchange rate value. Therefore, as a rational expectation, the public will only buy and sell foreign exchange according to market rules and determine a balanced exchange rate. Even if the exchange rate overshoot occurs, it will quickly restore the balance of the foreign exchange market. Although Hong Kong has not reached the ideal state of rational expectation, it can also be considered as a sub-optimal state. First of all, Hong Kong is a free economy, and has been among the best in the global competitiveness rankings for many years. Free competition has a long tradition in Hong Kong, and a necessary condition for free competition is the smooth flow of information, which is also a necessary condition for the formation of rational expectations. Second, Hong Kong has a sound legal system. Finally, there is an environment that produces rational expectations, and there must also be people with rational expectations. People have the ability to know all kinds of existing information, thus forming rational expectations. Hong Kong's economy is developed, the people's education level is relatively high, and the overall quality is relatively high. Relatively speaking, it can be considered that this condition is approximately satisfied. In fact, we don't need all the preconditions to realize rational expectations. As long as we are close, we can implement a floating exchange rate system, which has been well proved by some countries that implement a floating exchange rate system.
2. Hong Kong's sound financial system. Hong Kong is an international financial center with a sound financial system, including short-term foreign exchange market, foreign exchange futures market and options market. This provides a realistic basis for realizing rational expectations. When the abnormal fluctuation of exchange rate exceeds people's rational expectation, people make profits by trading derivatives such as futures and options according to their own rational judgment, and objectively return the exchange rate to the level of rational expectation. Under the condition of direct quotation, when the exchange rate is higher than expected, rational economic people will buy forward foreign exchange contracts and futures contracts or buy foreign exchange call options; When the exchange rate is lower than expected, rational economic people sell forward foreign exchange contracts and futures contracts or buy put options. Driven by this market force, abnormal fluctuations will be ironed out and the exchange rate will fluctuate within the normal range, which can effectively avoid the disadvantages of abnormal fluctuations caused by floating exchange rates.
3. The implementation of floating exchange rate system has both horizontal and vertical successful experiences. Singapore, like Hong Kong, is also a small and open economy, which has implemented a floating exchange rate system and achieved success. Singapore's economy has grown rapidly, and at the same time, Singapore has also grown into a financial center in Asia. In the Asian financial crisis, Singapore did not suffer too much impact, and the floating exchange rate system played a good isolation role. Vertically, Hong Kong has a floating exchange rate system of1974165438+1October 26th ~198365438+1October 7th. In the first 28 months, the floating exchange rate system worked quite well. The subsequent disintegration was caused by multiple factors, including international economic factors, such as the oil crisis, but the decisive force of the linked exchange rate system was political factors. All these show that Hong Kong's floating exchange rate system can also be successful.
4. Hong Kong's medium-term floating exchange rate system can accumulate experience for the future RMB floating exchange rate system. With the continuous development of China's economy, RMB will become one of the world's major currencies, and all the world's major currencies are subject to a floating exchange rate system. The floating exchange rate system will also be the inevitable choice of the exchange rate system after the RMB is freely convertible, which is commensurate with the national conditions of a big country like ours and in line with national interests. Switching from one exchange rate system to another is expensive. Implementing a floating exchange rate system in Hong Kong in the medium term can gain valuable experience and reduce the cost of exchange rate system reform. Because in the long run, with the continuous integration of Hong Kong economy and mainland economy, the integration of Hong Kong dollar and RMB is the only correct choice. Based on this consideration, the floating exchange rate system in Hong Kong in the medium term can make the process of RMB moving towards major international currencies more stable and lower in cost.
To sum up, we believe that Hong Kong's future exchange rate system will remain the linked exchange rate system in the short term, and the medium-term (transitional) floating exchange rate system may be a better choice; In the long run, the Hong Kong dollar will be integrated with the RMB and move towards a unified currency, and the exchange rate system will be a floating exchange rate system.
refer to
(1) Fu Hao, Xindan Li, Study on the Linkage Mechanism of RMB and Hong Kong Dollar Exchange Rate, China Commercial Press, 2000.
(2) Yu Zhu's "Hong Kong Finance Towards the Future", Hong Kong Sanlian Bookstore (Hong Kong) Co., Ltd., 1993.
(3) Ding Jianping's thoughts on the choice and adjustment space of RMB exchange rate system, International Finance Research, No.2, 2002.
The original source of tax research
Original name Beijing
The original issue number was 2004 1 1.
Original page number 75 ~ 77
Reserved fields This paper is the phased research result of the national social science fund project O1BY096 "Exchange rate linkage between RMB and Hong Kong dollar and related policies".