Hong Kong’s peg to the US dollar doesn’t always make sense to the people it affects most — and never more so than today, when Hongkongers are faced with sky-rocketing property prices and a currency that is fast losing value against all of its neighbours.
In a way, the city is caught between China and America. To maintain the peg, Hong Kong has no choice but to import America’s 0% interest rates, which has made it extremely attractive for mainlanders to borrow money in Hong Kong to buy property -- loans in Hong Kong dollars are only going to shrink as China’s currency is allowed to rise against the US dollar.
But the effect on Hong Kong’s housing market is far from attractive for locals trying to get on the first rung of the property ladder. House prices have almost doubled since the start of 2009. Holidays have also become more expensive as currencies in Southeast Asia strengthen against the dollar.
It all adds up to a strange kind of boom -- with house prices soaring much faster than salaries and the currency falling against its neighbours, Hongkongers don’t know which way is up.
To solve the conundrum, we asked our readers what they thought about Hong Kong’s dollar peg. The overwhelming majority reckon the territory should scrap it, but it is unclear what other options the city has.
Hong Kong’s economy is closely connected to China’s, so it would make sense to peg to the renminbi, were it not for the fact that China’s currency is not fully convertible. It will be many years before that option is on the table.
Another option is to peg to a Singapore-style basket of currencies, weighted against the city’s main trade partners, or simply to float outright in international markets. That seems like a recipe for back-room meddling by whichever interests have the most political capital.
The dollar peg can be a pain, but it might be less of a pain than any of the other options.
In total, respondents to our web poll last week voted 68% in favour of dropping Hong Kong’s peg to the US dollar.
Separately, a reader from Standard Chartered wrote to us last week bemoaning our failure to acknowledge the bank’s alleged role in coining the term “dim sum bond”.
“Finance Asia should be more generous in sharing the claim to be pioneering the name,” wrote the disgruntled banker. He went on to inform us that more than 200 participants voted for the term during a Standard Chartered seminar on September 14. We must have mislaid our invite to that one.
However, Standard Chartered should really be thanking us. After pointing out last week that FinanceAsia.com was the top result for a Google search for the term “dim sum bonds”, we notice that a couple of Standard Chartered research pieces, both with “dim sum” in the title, have since appeared in Google’s search results. Happy to oblige.
Photo provided by AFP.