Immediate changes to the HKD peg unlikely: analyst

Given problems with the alternatives, BBVA Research does not think changes to the HKD peg will happen in at least the next 3-5 years.

BBVA Research noted:

A newly published academic paper by Mr. Joseph Yam, former head of the Hong Kong Monetary Authority (HKMA), has made a stir in Hong Kong.

In the paper Yam says the authorities should consider eventually delinking Hong Kong’s currency peg from the USD in order to curb inflation and asset bubbles. The paper suggests three alternatives: i) a floating exchange rate; ii) having the HKD pegged to China’s RMB; or iii) having the HKD pegged to a basket of currencies.

The paper provoked strong rebuttals from Hong Kong’s senior government officials, including the forthcoming new Chief Executive, Mr. C.Y Leung.

We believe any changes to the HKD peg are unlikely in at least the next 3-5 years, given problems with the alternatives. And while not new, Yam’s views nevertheless, have validity from a longer term perspective.