The Future of the Monetary System of Hong Kong

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6. The monetary crisis in September 1983 in Hong Kong had a sharp focus in the exchange rate, involving, at the height of it, a depreciation of the Hong Kong dollar against the US dollar of 15% in one and a half working days. On Saturday 23 September 1983, the Hong Kong dollar’s exchange rate against the US dollar reached 9.60. There were empty shelves in supermarke ts as people scrambled in panic to stock up rice and toilet paper. Stabilization of the exchange rate was then the main concern. Indeed, the Government statement issued at noon on Saturday 15 October 1983 announcing the scheme to fix the exchange rate at 7.80 said that: “we cannot run the risk of further spiraling depreciation, with the rampant inflation and distress which that would bring to all our community. A return of confidence to our currency is essential”.

18. Meanwhile, since the establishment of the LERS in 1983, the economy of Hong Kong has increasingly become integrated with, and dependent on, the economy of the Mainland of China. With the clear prospect of the renminbi becoming an international currency, the question has also been asked of ten whether Hong Kong, as an integral part of China, needs to have its own currency. The Basic Law, nevertheless, specifies that the Hong Kong dollar is legal tender in Hong Kong. So, monetary policy matters in Hong Kong because it is an autonomous currency issuer. The question then becomes one of whether, even accepting that a fixed exchange rate serves Hong Kong well, the currency anchor should not be, in the fullness of time, the renminbi instead of the US dollar.