No need to tamper with HK currency

Whenever the Hong Kong dollar peg is seen to be under pressure because of an unusually large movement of the US dollar either way, there is no shortage of economists and commentators calling for the scrapping of the 24-year-old currency arrangement.

This time, it is the depreciation of the US dollar, which has depressed the exchange rate of the Hong Kong dollar against most other major world currencies and the renminbi, although the Hong Kong economy has remained robust. This has led some economists and investment analysts to conclude that the currency peg has driven up import prices, which, in turn, is fuelling inflation.

Their call for currency de-pegging was rebuffed by Hong Kong monetary chief Joseph Yam. Citing a study by the Hong Kong Monetary Authority (HKMA), the de facto central bank of which he is chief executive, Yam noted that a 10 percent depreciation of the US dollar against other currencies would cause Hong Kong prices to rise no more than 0.82 percent in the short-term, and 1.61 percent in the medium-term. Yam attributed Hong Kong's rising inflation rate mainly to wage increase at a time when strong economic growth is pushing up the demand for workers.