![]() Does Yam know something we do not? The timing makes perfect sense, too. In this orbit of winks, nods and secret handshakes, a former monetary guru pushing an argument naturally has traders wondering. While Yam has been out of the HKMA since 2009, his is a very small financial world, as are global central banking circles. To many, this smacks of a trial balloon-a step toward the bigger goal of either pegging to the yuan and having no peg at all. Such a dual-currency system, Yam believes, would shield Hong Kong from today’s mismatch between the yuan, the US dollar and China’s global ambitions. Now, he proposes allowing local stocks to be priced and traded in yuan, too. In 2012, he called for a formal review of the peg, causing a spike in the Hong Kong dollar. On the financial side, Yam thinks it is time for reform. But if Hong Kong cannot narrow inequality, its low tax rate might, indirectly, foment discontent from the ground up, bringing the Umbrella Revolution back onto the streets. Li recommending taxing companies “an extra one or two percent" to benefit the poor smacked fellow tycoons as heresy. In June 2016, Li put on his Warren Buffett hat to broach the issue of higher taxes. Yet she might abhor the pegged currency, publicly controlled property sector, opaque decision making, government-backed Disney theme park and the city’s leaders being picked by Beijing. ![]() Sure, Ayn Rand would have cheered its 15% corporate tax rate, unfettered capital flows, ease of doing business, rule of law and duty-free port. It also would fit in with Hong Kong’s reputation as the freest economy.įrankly, Hong Kong’s capitalist bone fides are a bit complicated. ![]() Scrapping it is smart economics and a sign of confidence Hong Kong is ready to dispense with its 34-year-old financial training wheels. It is high time Hong Kong recognized the dollar peg’s role in this swirl of discontent. In 2014, before 100,000 Hongkongers clogged the streets, Li gave a prescient speech about the perils of the Dickensian trajectory China’s green zone is on. This tale of two economies even has some tycoons worried, including Li Ka-shing, Hong Kong’s richest man. Blame Hong Kong’s oligarched economy: the tycoons are reaping the benefits of the 3.8% growth posted in the second quarter, while many of the city’s 7.3 million residents fall behind. Hong Kong is now less egalitarian than Singapore, the US or Britain. The massive Umbrella Revolution protests in 2014 were partly about Hong Kong’s worsening “Gini coefficient", a measure of income inequality. When exchange rates diverge from an economy’s fundamentals, things go awry. That’s precisely what Rajan did in September 2013 when he arrived at the Reserve Bank of India (RBI). In his new book, I Do What I Do, Raghuram Rajan makes a strong case that a central bank’s most vital function is stabilizing the exchange rate. It will ultimately be made by Chinese President Xi Jinping, and let us hope he gives Chan the greenlight, and soon. Will the HKMA, now run by Norman Chan, scrap the dollar peg? The decision is far above his paygrade, of course.
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