Should Hong Kong Currency Still Be Pegged to the Us Dollar or Choose Fixed-Rate with Rmb?

Should Hong Kong currency still be pegged to the US dollar or choose fixed-rate with RMB?

The dollar is so popular because it's the world's reserve currency. Most of Hong Kong's trade is settled in US dollars. The exchange rate is pegged to the dollar, which means that importers and exporters do not have to bear the risk of exchange rate fluctuations. Also it can effectively control the growth of Hong Kong dollar currency and maintain the basic stability of Hong Kong dollar.

In the case of fixed exchange rate and free-floating capital, the independent monetary policy cannot be implemented. While the role of monetary policy is to maintain a fixed exchange rate. So, for Hongkong, its monetary policy is basically the same as the United States monetary policy, the United States loose, Hongkong is loose, the United States tighten, Hongkong is also tight. Then Hong Kong's monetary policy may deviate from its own economic development, resulting in policy mismatch.

For the Hong Kong dollar, a conjecture that it will be pegged to Yuan, to some extent, is reasonable. Over time, the economic ties between Hong Kong and the mainland are becoming more and more close, and it is more convenient to settle in Yuan than US dollar.

However, we think Hong Kong still needs to peg its currency to US dollar. At present, China accounts for about half of Hongkong's total foreign trade. While the level of internationalization of the RMB is still very limited, the other half of the country's trade settlement mainly relies on the dollar. In this case, the Hong Kong dollar has nothing to do with the RMB. Another important reason is that Hong Kong has a very large US dollar reserves and there is not enough RMB outside the Chinese mainland to replace the Hong Kong Monetary Authority so much US dollar foreign exchange reserves. China uses a dirty floating rate. Therefore, RMB is not fully convertible currency and cannot be used as the base currency. If Hong Kong dollar were pegged to RMB，it would lose characteristics of fully convertible international currency and harmfully maintain the monetary in Hong Kong.