The linked exchange rate regime was originated for a one-time need to contain the sharp depreciation of HK$ on 17 October 1983, in reaction to a currency crisis arising from the Sino-British dispute concerning the political future of HK after 1997. Capital were flowing out of HK and led to a further loss of confidence in HK dollar. In fact, there are other countries that are engaged in similar fixed exchange rate regime, like Argentina, Bulgaria, Estonia and Lithuania.

Back to Hong Kong, under the pegged system, she enjoyed an annual per capita GDP growth of 5% from 83-92. The foreign currency assets of HK, including those held in the Land Fund, were US$ 98.1 billion at the end of January 1998. According to Professor Milton Friedman, ¡§a small country is better off linking its own currency to that of a major country, particularly one with which it has close economic relationship, which is a major trading partner¡¨. The more flexible an economy is, the more suitable is a fixed exchange rate to it, because there is no need to change nominal prices

The link with the US$ means that HK$ also link with US$ exchange standard, and HK¡¨s economy becomes US-dependent, i.e. the value of HK$ depends much on the performance of US$ and the US economy rather than our own. Besides, US¡¦s government policy, its economic and political cycle also affect us.

Some topics in this essay:
Revalue HK$, Simplicity Consistency, Hong Kong, Payments US$, Inflation Link, CONS Misinformation, Rate Adjustment, HKMA US$, Reference Introduction, Milton Friedman, exchange rate, hong kong, rate regime, fixed exchange rate, market exchange, rate system, foreign exchange, fixed exchange, exchange rate regime, linked exchange, market exchange rate, exchange rate system, linked exchange rate, stock market, currency crisis,