Cheng Siwei, former vice chairman of the Standing Committee of the National People’s Congress, has proposed Hong Kong adopt a floating exchange rate regime, Singtao Daily reported Thursday. The Hong Kong dollar’s peg to the US dollar benefits from a strong greenback but problems occur when it weakens, he was quoted as saying. The 30-year link to the US dollar has been questioned recently because of inflation and asset bubbles in Hong Kong, especially with US quantitative easing. From the academic point of view, the Hong Kong dollar should trade against a basket of currencies because a single link to the US dollar will limit the city’s monetary policy scope, Cheng said. However, Hong Kong Monetary Authority chief executive Norman Chan defended the US dollar peg, saying it helped the city survive various financial crises, while a floating exchange rate would cause frequent capital inflows and outflows, leading to fluctuations in the Hong Kong currency, the report said.
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