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Why doesn't the government repeg th HK$?

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  1. #1

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    Why doesn't the government repeg th HK$?

    Forgive my ignorance, but I understand why the government does not repeg the HK$, perhaps 10 or 20% higher (while still keeping the US$ peg of course, not turning to the CNY).

    Prices of properties would come down and prices would come down.

    Since Hong Kong doesn't really manufacture anything, it should have only very marginal implications on exports and employment. Hong Kong would become more expensive for tourists, but reach tourists wouldn't care, and poor tourists... nobody is very interested in them. Besides, HK would still be very cheap compared to Europe, and tourism in Europe exists with very high prices.

    So, I really don't understand why the government doesn't repeg. Can someone explain it to me? Is it just stubborness? It wants to prove it doesn't get pushed around by public opinion and international speculators?

    In the meantime, I am changing my CNY to HK$.


  2. #2

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    At a guess, because the peg is a peg and the point of a peg is stability and ability to plan. Changing it undermines all of that.

    walkup likes this.

  3. #3

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    A peg does not need to be forever. Malaysia used to peg its currency to USD for many years, and it did release the peg in 2005 and it has appreciate steadily since. When the need arises, the peg should be unplugged. Question is - when is the appropriate time and does this government have the guts to do it?


  4. #4

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    Quote Originally Posted by cheepo:
    Prices of properties would come down and prices would come down.
    Many high government officials own expensive properties. You don't expect them to become a thief of their own purse, do you?

  5. #5

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    Quote Originally Posted by Drunken Master:
    Many high government officials own expensive properties. You don't expect them to become a thief of their own purse, do you?
    They keep introducing measures to drop property price, and nothing works. Right now the high property prices seem to be the biggest social complaint, and they don't seem to have found a way to address it.

    According to many, a repeg would lower property prices by about the same amount the currency is repegged (though in my opinion, by less than that).

    With the QE in the US, I can't see how the peg can be meaningfully maintained, or why it should.

  6. #6

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    Quote Originally Posted by cheepo:
    They keep introducing measures to drop property price, and nothing works. Right now the high property prices seem to be the biggest social complaint, and they don't seem to have found a way to address it..
    That is why they introduced the 15% and other measures. They knew it will not lower the property prices. At least they can tell the HK people they have done their best. Think about it, if you were to own properties worth tens/hundreds of millions, you don't want the prices go down.

  7. #7

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    You planning to short the HK dollar OP? VERY bad bet, if a top dog like Soros failed in trying to de-peg the HK dollar from the US dollar, what chance does a small fry like you stand? (Relax, only kidding!)

    Besides, there is a political component as well. The HK government, like their mainland big brother, does not want instability, you know, they want everything to be "harmonious". And having a floating currency would introduce an unstable element which is the last thing they want.


  8. #8

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    No, I am not planning to short the HK$. I have some CNY bonds, giving me an interest rate of 1.5% (I know I am not a good investor), and I am changing those back to HK$. I will buy some shares or index funds with the money, or keep it in my savings account. I am scared they will repeg 20% higher.

    I don't see the problem in having a floating currency, but I agree that this might bring some insecurities. Instead, I think they should repeg, not float it. Perhaps at HK$6 or 6.5 to US$1.


  9. #9

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    Quote Originally Posted by cheepo:
    They keep introducing measures to drop property price, and nothing works. Right now the high property prices seem to be the biggest social complaint, and they don't seem to have found a way to address it.

    According to many, a repeg would lower property prices by about the same amount the currency is repegged (though in my opinion, by less than that).

    With the QE in the US, I can't see how the peg can be meaningfully maintained, or why it should.

    If Hong Kong wanted to drop property prices, they could simply change their immigration policy. Hong Kong has one of the lowest, if not the lowest birth rates in the world....yet demand for property is high. Instead of increasing supply...reduce demand. Tighten immigration.

    Reduce the population of Hong Kong = Less Demand for Property = Lower Prices.

    It would also reduce congestion and pollution.
    SiuMaiTaiTai likes this.

  10. #10

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    If the HKD was allowed to substantially repeg, the question would be asked of the CNY, 'so what about you?' The best you might expect would be a crawling peg, but even here we have problems. That peg would have to keep in step with the CNY and if that were the case why have the HKD at all? Like it or not there are political as well as purely economic considerations otherwise you might end up following the law of unintended consequences. Be careful what you wish for. Keeping with the current peg is the cleanest shirt in a dirty laundry basket.

    emx likes this.

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