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The Peg and HK Rates

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  1. #21

    Join Date
    Jul 2021
    Posts
    186

    Okay let me have a stab at this because it worked so well the last time hoohoo

    Numbers are nice, because they hold everything together and give a level of precision/accountability but what about the story behind the numbers?

    one unchanging story is that the US dollar will be defended to the bitter end, because very powerful entities, not necessarily American, have very easy access to a lot of dollars which is used maintain what they believe to be the global order. They will twist the feds arms to defend the dollar. Once a currency devalues, it rarely comes back.

    as policies used to strengthen the dollar are implemented, the HKMA will initially use up their reserves to preserve the peg. Unfortunately, I think the fed is only getting warmed up. This loss of reserve may seem like a non-life threatening slap to the face of the HKD, fed will up the ante to keep revaluing the dollar. At some point the HKMA will try and increase rates too, which will make the Hk economy suffer

    So why does the HKMA maintain a peg? The peg is effectively a signal that the Hk economy is on the same page as the US economy, regardless of human rights and democracy. That the HKD will rise and fall in the same rhythm as the USD according to the needs of its consumer economy(more on that below).

    the Chinese economy is a producer, export-driven economy, which makes its money mainly thru making stuff and trying to sell it. The hk economy on the other hand, is more like the west, a consumer, import-driven economy, which makes it money mainly thru investing in houses, financial instruments and of course the people and factories that make the stuff as mentioned above.

    if the Chinese believe the costs of saving the peg are too high for sure they will abandon it. But this would mean now their entire country including Hong Kong is now a producer, export-driven economy, which makes its money mainly thru making stuff. It will become one-dimensional and may lose its edge versus nearby countries, because they can only make money making stuff and trying to sell it

    as said above, the USD revaluation operation is just getting started. How will china choose? The answer ironically is to keep track of the numbers

    GentleGeorge likes this.

  2. #22

    Join Date
    Oct 2021
    Posts
    244

    HKD is not the only thing pegged to the US dollar. CNY itself is on a soft peg to USD. If it deviates too far away from what they see is fair price, they always step in and maintain the desired rate band.


  3. #23

    Join Date
    Oct 2010
    Posts
    23,014
    Quote Originally Posted by timothwc:
    Okay let me have a stab at this because it worked so well the last time hoohoo

    Numbers are nice, because they hold everything together and give a level of precision/accountability but what about the story behind the numbers?

    one unchanging story is that the US dollar will be defended to the bitter end, because very powerful entities, not necessarily American, have very easy access to a lot of dollars which is used maintain what they believe to be the global order. They will twist the feds arms to defend the dollar. Once a currency devalues, it rarely comes back.

    as policies used to strengthen the dollar are implemented, the HKMA will initially use up their reserves to preserve the peg. Unfortunately, I think the fed is only getting warmed up. This loss of reserve may seem like a non-life threatening slap to the face of the HKD, fed will up the ante to keep revaluing the dollar. At some point the HKMA will try and increase rates too, which will make the Hk economy suffer

    So why does the HKMA maintain a peg? The peg is effectively a signal that the Hk economy is on the same page as the US economy, regardless of human rights and democracy. That the HKD will rise and fall in the same rhythm as the USD according to the needs of its consumer economy(more on that below).

    the Chinese economy is a producer, export-driven economy, which makes its money mainly thru making stuff and trying to sell it. The hk economy on the other hand, is more like the west, a consumer, import-driven economy, which makes it money mainly thru investing in houses, financial instruments and of course the people and factories that make the stuff as mentioned above.

    if the Chinese believe the costs of saving the peg are too high for sure they will abandon it. But this would mean now their entire country including Hong Kong is now a producer, export-driven economy, which makes its money mainly thru making stuff. It will become one-dimensional and may lose its edge versus nearby countries, because they can only make money making stuff and trying to sell it

    as said above, the USD revaluation operation is just getting started. How will china choose? The answer ironically is to keep track of the numbers
    I can’t believe I wasted two minutes on that word salad.
    timothwc likes this.

  4. #24

    Join Date
    Nov 2005
    Location
    Cramped island
    Posts
    5,041

    errrr.... what was that ? (3 or 4 posts above)


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