Jump to content

Tom Holland email / The HK Dollar peg


Recommended Posts

OPEN LETTER TO TOM HOLLAND, at The South China Morning Post

 

The HK Dollar peg - the 50% solution / tom.holland@scmp.com

==== ==== ====

 

20050409_color_of_money_01_2.jpg

 

Hi Tom,

 

This is the second time I have emailed you. The first time was after you dismissed the merits of gold back on April 9, 2008 (when it was trading at $921 per ounce.) - see below. Let's see if my comment proves as prescient as the last one.

 

I just read your article: "Yuan peg would leave HK adrift without an anchor."

 

Some good points there, but you missed one likely scenario : A re-peg which would be 50% US dollar/ and 50% Yuan.

 

(For example : the value of the HK$ might be established at something like: 5.5 US cents, plus 50 /100 of the Yuan's US dollar value. The calculation today would be: $0.055, plus /50% x $0.1504 =$0.0752/, or a sum of US$0.1302 versus the current market price of US$0.1286/ HK$7.777. Obviously, using this formula to value the HK$: if the Yuan strengthen, the HK$ would then move up versus the US dollar, with 50% of the Rmb gain.)

/see: http://www.x-rates.com/d/HKD/table.html

 

This "strange idea" is not mine. It comes from John Greenwood, inventor of the current peg, 27 years ago. I heard him mention it in a speech that he gave for the Lion Rock institute about two years ago. It helps to get around the problem of the non-convertibility of Yuan, since if the HK$ is too weak or too strong, the HK monetary authorities can sell of buy US dollars to move the traded exchange rate.

 

It might be a good "halfway step" on the way towards a 100% peg to the Yuan.

 

BTW, I have picked up an interesting rumor from the internet.

 

Some folks are saying that China is considering swapping its US dollar holdings for HK dollars. The rumor is vague, but from what I have heard it might work something like this:

 

+ China would hand back to the US a major postion of its US dollar T-bond holdings (lets say $600 billion worth),

+ In return, the US would give them a large amount of gold, and new HK$ debts issued by the US treasury

+ China would use the Gold to back the HK$ currency, which would be allowed to float, while the Rmb remains non-convertible

+ The HK$ would then be expanded, as China would begin to denominate transactions (oil shipments?) in HK$, rather than US$

+ The world would accept the HK$ as a major new currency thanks to China's backing

 

Have a thought about this scenario. Maybe you will see some genuine merits in it.

 

Best regards, Michael Hampton

 

note: History of HK$ : http://en.wikipedia.org/wiki/Hong_Kong_dollar

== == == ==

 

hong-kong-gold-2009-9-8-7-42-54.jpg

 

PRIOR EMAIL : April 2008

 

----- Forwarded Message ----

From: Michael Hampton <mhnvest@yahoo.co.uk>

To: tom.holland@scmp.com

Sent: Wed, 9 April, 2008 19:24:10

Subject: Gold and the Wise men

 

 

Tom, please tell me you were joking!!

 

Here's the reaction to your article which went up on my website (GEI) today:

http://www.greenenergyinvestors.com/index.php?showtopic=3015

 

 

Wise Men choose to sell down gold

So says the usually-intelligent Tom Holland, in SCMP

==================================

 

I usually read Tom Holland's column in the SCMP for intelligent commentary on matters financial. So this morning's column about Gold caught me by surprise.

 

He starts off well enough:

"The reputation of the world's bankers has taken a few knocks in the months since the subprime crisis blewup."

(Certainly a diminished repuation is well-deserved result of missing this, the most obvious of coming debt crises.) Then he goes on to mention some bankers that are still held in high esteem, but mistakenly includes Alan Greenspan, the proximate architect of the house price surge of 2001-2006, in his list of respected Central bankers. Is he joking perhaps?

 

And the column goes steadily downhill from there. He talks about a "speculative boom in gold", and depicts the "400 spare tonnes" of gold which is sitting in IMF vaults as something that is merely "gather dust" there while the fund is "suffering an income shortfall of US$200 million this year."

 

Tom, you've got that backwards. The low-returning dollar assets held by the IMF are the problem. A desperate Federal Reserve has shaved rates, reducing the IMF's potential interest income from its dollar assets, even as its expenses- which are denominated in various currencies- have soared in dollar terms.

 

Excessive money printing, and interest rates at ludicriously low levels, as engineered by Greenspan's Fed, are to blame for the fall in the dollar, and the rise in Gold. The surge in value of the IMF's gold holdings has been one of the few bright spots, which have allowed the organisation to retain some semblence of a reasonable balance sheet. And now, the enhanced value of those reserves, gives the IMF the ability to capture a big windfall, which they can use to improve their cash flow situation.

 

Holland then endorses the IMF's suggestion that they selldown their gold, and invest the proceeds in high-grade (what's that, some triple-A rated paper?) income-generating assets, where they migh earn enough to cover their operating shortfall. Another possibility, which he fails to entertain, is that the IMF might slim down on its staff. A smaller staff might bring less interference of the type that the Fed has been creating. As an example of the ineptness of the wisdom of banking officials, it was Greenspan's willingness to drive interest rates down during 2001 to 2003, to rates as low as 1.25%, which touched off the big inflation in the first place. People like Ron Paul, wantr to put an end to such interference by Central bankers.

 

As I read this, it occurred to me that Tom might have written the column for April first, and for some reason, it was published after April Fool's Day. But the last paragraph removed that possibility for me:

 

"To avoid undermining the value of their holdings, European Central Banks and the IMF have agreed collectively to sell no more than 500 tonnes of gold a year. That deal has helped to support the price. But speculators who last year bought 400 tonnes of bars and coins and a further 250 tonnes through gold funds might do well to wonder why they are so keen to buy gold when the wise and the worthy of the financial world are busy selling."

 

Wow. The "wise and the worthy"?

Like Gordon Brown? ...who sold half the UK's gold at the bottom at near $250 per ounce. Or Alan Greenspan, who doesn't know a bubble, whem he sees one, and created the mess of over-valued real estate in the first place?

 

Believe me, my own investing has done wonderfully well over the last few years by avoiding listening to "worthy" Central bankers, and mainstream media pundits enthralled by the likes of Greenspan. It has been far more profitable to listen to wisdom from people who put their own fortunes on the line- people like Jim Rogers, Marc Faber, Peter Schiff, and Jim Sinclair. They saw the subprime crisis coming (as I did), and have consistently recommeded shedding dollar assets, before they lose more value.

 

Even the mainstream is now turning on Alan Greenspan. Today's Asian Walll Street Journal devotes two pages an article which discusses how the former Fed Chairman's reputation is being re-evaluated. They point out some of the errors in his thinking such as:

 

"Based upon decades of his own research, he believed that a bouyant housing market would spur homeowners to borrow against home values and spend more (edit: and did they!) This wouldn't produce a housing bubble, he predicted, because it was difficult to speculate in homes (edit: until banks went crazy lending such high percentages of a home's value), and the memory of the 2000 tech stock bust remained fresh (edit: that didn't stop banks from aiding speculators so aggressively.)

 

Mr. Greenspan admits that he was wrong about the impossibility of a housing bubble."

 

If you want a more scathing recollection of Greenspan's role in creating a housing bubble, there's a recently published book by Bill Fleckenstein called: "Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve." Fleck sets the record straight in a way that should keep Greenspan from getting off the hook. He fully deserves an ignominious place in financial history. And so do many other central bankers, who read from Greenspan's play book and pumped up the money supply in their own countries, and used the money to buy in all the extra dollars that were sloshing around the gloabl financial system. So Greenspan's error in the US was exported to the world, and helped to craete a global property bubble, which only now is beginning to follow US real estate down into the toilet. For instance, a UK bank reported a 2.5% fall in their index of UK property prices for March alone. Spain's has a property mess which is laredayt even worse than in the US. And an Australian downturn seems to be on the way.

== == ==

 

LINK to here: http://tinyurl.com/HK-peg

 

Tags :: gold backed hong kong dollar peg rmb

Link to comment
Share on other sites

( I found this recent article on the HK$ peg ):

 

Designer of Hong Kong’s Dollar Peg Still Supports It.

 

crtgreenwood1021_D_20101021072250.jpg

Bloomberg News / John Greenwood, chief economist at Invesco Asset Management Ltd.

 

The growing internationalization of the yuan and the U.S. dollar’s weakness still don’t make a strong enough case for Hong Kong to change its dollar-based monetary system anytime soon, according to John Greenwood, often called the architect of Hong Kong’s currency board.

 

Back in 1983, when huge uncertainty over Hong Kong’s future was spurring capital flight, Greenwood proposed pegging the territory’s currency to the dollar. Currently chief economist at Invesco Ltd. in London, he addressed an audience of students and academics at Hong Kong University on Wednesday afternoon.

Despite widespread enthusiasm in Hong Kong towards the yuan’s growing influence on the international stage, Greenwood cautioned that China needs to “offer real rates of return to investors” to qualify as a robust financial market. Even now, if capital accounts were opened, he believes huge numbers of people would immediately want to move their capital out of the country as a precaution.

 

“Until they can convince their own people that their markets can give good returns and offer stability and solidity of financial returns for long periods of time,” China isn’t mature enough to open its capital account.

 

Realistically, it will be “many years, or even decades” before China achieves full convertibility, he said. And if the capital account is closed, the yuan can’t be the basis for a Hong Kong currency peg.

 

Perhaps because he lives in London, Greenwood came off as oddly detached to the dollar-peg’s unwelcome side effects–namely, the flood of money into property amid superlow interest rates imported from the U.S. that don’t reflect Hong Kong’s booming growth. Asked about the risk that the steady rise of the yuan against the Hong Kong dollar would lead to inflation in the price of foods and other basic goods that Hong Kong purchases from the mainland, Greenwood seemed to misunderstand the point, instead assuring the questioner that inflation in the U.S. was nowhere on the horizon.

 

He dismissed both pegging to a basket of currencies and allowing the Hong Kong dollar to float, warning that either move would lead to an inevitable “politicization of monetary policy,” with different groups lobbying to adjust the exchange rate in their favor and susceptibility to fluctuations due to political instability in China.

 

His advice for Hong Kongers? “Ride it out.” Greenwood strongly believes that over-leveraging is the enemy, which “poses the great problem to the economy and societies at large.” The prudence of Hong Kong banks and households means the pain will be limited even if asset prices rise and suddenly plunge – or the bubble bursts.

 

It’s difficult to argue with Greenwood’s logic. Unfortunately, it doesn’t make the situation any more palatable to the many Hong Kong households who fear being priced out of the local property market.

 

–Isabella Steger

 

/see: http://blogs.wsj.com/chinarealtime/2010/10...ll-supports-it/

Link to comment
Share on other sites

(Stefan Karlsson's blog)

 

Saturday, October 16, 2010

Why Hong Kong's U.S. Dollar Peg Should End

While all attention has been on the slow appreciation of the yuan against the U.S. dollar, little attention is given to the Hong Kong dollar, which hasn't moved at all.

. . .

You must in other words choose which currency or currency bloc (if any) to have a fixed exchange rate and which currencies you shouldn't have a fixed exchange rate with. Since as stated above the purpose of fixed exchange rates is to facilitate trade, the most rational choice is to have a fixed exchange rate with the country that you have the largest degree of economic interaction with. That is why it is for example natural for Denmark to have its peg of the Danish krone to the euro.

 

In Hong Kong's case that means mainland China, which stood for 48.6% of Hong Kong's total trade in 2009. While the United States came in second, it was a very distant second with only 8.3% of Hong Kong's trade.

. . .

Furthermore, another important consideration also argues for ending the U.S. dollar peg. That consideration is how sound or unsound monetary policies are in the country you have a fixed exchange rate with. If you have a fixed exchange rate and free capital flows you will no longer have an independent monetary policy, and you will instead adopt the policy of the country you have a fixed exchange rate to.

 

And with the Fed pushing forward with "quantitative easing", while China has started to gradually increase the value of the yuan, it should be clear that a peg to the yuan would be less inflationary than a peg to the U.S. dollar.

 

Hong Kong should therefore as soon as possible end its peg to the U.S. dollar, and instead peg the Hong Kong dollar to the yuan. In the long run, the Hong Kong dollar should, as Jim Rogers has argued, be abolished and replaced with a monetary union where the yuan is currency in Hong Kong. However, that should wait until the yuan is fully convertible. To make that future transition smoother, a fixed exchange rate to the yuan would be a good first step though , especially if they decide (as I think they should) upon a 1:1 exchange rate between the Hong Kong dollar and the yuan.

 

/more: http://stefanmikarlsson.blogspot.com/2010/...should-end.html

Link to comment
Share on other sites

BTW, I have picked up an interesting rumor from the internet.

 

Some folks are saying that China is considering swapping its US dollar holdings for HK dollars. The rumor is vague, but from what I have heard it might work something like this:

 

+ China would hand back to the US a major postion of its US dollar T-bond holdings (lets say $600 billion worth),

+ In return, the US would give them a large amount of gold, and new HK$ debts issued by the US treasury

+ China would use the Gold to back the HK$ currency, which would be allowed to float, while the Rmb remains non-convertible

+ The HK$ would then be expanded, as China would begin to denominate transactions (oil shipments?) in HK$, rather than US$

+ The world would accept the HK$ as a major new currency thanks to China's backing

??

"China is considering swapping its US dollar holdings for HK dollars"

??

Who else is talking about this idea ?

??

"the US would give them a large amount of gold, and new HK$ debts issued by the US treasury"

??

Why would the US do that?

??

People like Rick Ackerman explain why China holds all those US Dollars:

http://www.rickackerman.com/2010/03/we-app...efying-beijing/

 

"China swapping its US Dollar reserves for Gold would completely defeat the purpose of why it acquired those reserves in the first place. China acquired those US Dollar reserves because they wanted to weaken the Yuan relative to the Dollar. They could have chosen to simply allow the Yuan to rise in value (due to the trade surplus net demand for Yuan). Instead, they made the explicit choice to “print” Yuan and buy Dollars … thus building US Dollar denominated foreign reserves So, until China adopts a different stance w/respect to the Yuan vs. the Dollar …"

 

The US would not give away its Gold to help China set up a competing currency

Link to comment
Share on other sites

My personal opinion is that HK is being warmed up for a greater acceptance of the Yuan in the next few years. Some peg or partial pegging seems a likely outcome in the near term. Just observations but I have noticed in the last few weeks:

 

1) Retail banking has gone RMB mad led by HSBC and BOC. Go to any HK bank or their website and you are inundated by the latest RMB products. This is a change to 6 months to a year ago.

 

2) Retailers are encouraging/supporting yuan payments. This is being driven by the big chains. I saw two customers pay for goods in RMB last weeks. First time ever in my six years in HK

 

3) The first RMB IPO supported by Li K Shing heavily publicized 2 days ago

 

4) HSBC is advertising the opening of Yuan cashpoints across HK. This will further encourage the circulation of the currency across the territory.

 

I feel the corporates/ government (same thing) are warming the public up for further integration and acceptance of the RMB. This seems to be happening at lightening speed with a likely big announcement in 2011/12. Its a gut feeling you get just by living in HK and there is a momentum of change at the present time. My prediction would be a re-peg to basket of currencies announced spring 2011

 

 

Link to comment
Share on other sites

My personal opinion is that HK is being warmed up for a greater acceptance of the Yuan in the next few years. Some peg or partial pegging seems a likely outcome in the near term. Just observations but I have noticed in the last few weeks:

.. ..

I feel the corporates/ government (same thing) are warming the public up for further integration and acceptance of the RMB. This seems to be happening at lightening speed with a likely big announcement in 2011/12. Its a gut feeling you get just by living in HK and there is a momentum of change at the present time. My prediction would be a re-peg to basket of currencies announced spring 2011

Those 6 bulletpoints are great.

 

I do think there is a small chance that we will see a re-pegging between now and Chinese New Year, and a much bigger chance that we will see a re-peg sometime in 2011.*

 

So I have been moving my money from US$ to HK$, and buying long dated straddles of stocks priced in US$.

These are a sort of "insurance policy", and I do not see how I am worse off being in HK$ than US$:

 

+ If the US$ rises, I should gain from the peg,

+ If the HK$ is re-pegged, then the HK$ should gain vs. US$

 

Of course, the US$ and the HK$ could fall together, but I am willing to take that risk.

== == == == ==

 

*HK dollar re-peg to RMB tipped before end of 2011: BarCap's Peter Redward argues that

Link to comment
Share on other sites

HK dollar still dominant currency despite yuan inflow: HKMA

 

"Yuan deposits in Hong Kong jumped 45 per cent in October"

 

By Roland Lim | Posted: 08 December 2010

 

HONG KONG: The Hong Kong Monetary Authority has reiterated once more that the Hong Kong dollar remains the city's dominant currency and that its status will not be affected by the increasing flow of yuan into the territory.

 

Speaking at a forum on Wednesday, HKMA chief executive Norman Chan said it was premature to end the Hong Kong dollar peg to the US dollar, for the yuan.

 

The HK dollar has been pegged at 7.80 to the greenback since 1983.

 

Concerns have been raised about the Hong Kong dollar's peg to the greenback following rapid yuan inflows into the territory due to yuan-denominated cross-border trade settlement and yuan-denominated bond sales, with some talking about a peg to the Chinese yuan instead.

 

However, the HKMA is saying that the yuan isn't ready. Despite China allowing more yuan flexibility in trade currency settlements with major trading partners, it will take some time before the HK dollar can be pegged to the Chinese currency.

 

The yuan has to be fully convertible and China's capital account liberalised, for there to be a more mature financial market for yuan products, and Hong Kong's economic cycle must match China's. These has yet to happened and it will be some time before it does.

 

But the importance of Hong Kong as an offshore renminbi trading centre is growing exponentially.

 

Yuan deposits in Hong Kong jumped 45 per cent in October from the previous month to 217 billion yuan, which is about US$33 billion. This represents the biggest percentage rise since 2004.

 

At the same time, Treasury Secretary KC Chan added earlier this week that Hong Kong's pool of yuan capital is not substantial and does not pose a threat to financial markets on the mainland.

 

There were reports that hedge funds are hoarding up to US$1.3 trillion of capital in the city to enter mainland markets. The Treasury Secretary refuted this and added that it is unlikely that the money going from Hong Kong to China will be used for short-term speculation, because all flows must be approved by Chinese regulators.

 

/more: http://www.channelnewsasia.com/stories/eco...1098034/1/.html

Link to comment
Share on other sites

There is of course a concern in holding lumps of cash (HKD) with the spectre of inflation.

 

It is possible/probable that inflation will grip HK in the near future, the long term mindset of deflation is likely to change as the 'china effect' diminishes. It has the type of culture through which a 'mania' phase could kick in driving prices higher and causing some significant problems. Indeed the property speculators have been gambling on this being the case. Wages are certainly going up although this has been somewhat inconsistent and patchy. The 'straddle' bets you mentioned are unfortunately beyond my scope of investment capablilities.

 

Personally Ive stuck a proportion into 'safe' stocks which traditionally have held firm or even risen during panic sells (e.g HK electric) and brought into a few long term fixed deposits (4%) knowing their terms and conditions enable withdrawal at any stage when the time comes.

Link to comment
Share on other sites

It is possible/probable that inflation will grip HK in the near future...

There is talk of 5% inflation for 2011 in the following article.

How can HK keep mortgage rates near 1%, if we see that ?

 

December 05, 2010

 

Inflows raise questions on future of HK dollar peg

 

HONG KONG -- Is the Hong Kong government rapidly approaching the day where it has to decide whether to scrap or overhaul its decades-old currency peg?

EXCERPT

This time around, the chorus of calls for Hong Kong to simply ditch the “peg” have not been as shrill, though some economists and academics maintain it has outlived its usefulness.

 

Instead, debate has flared as to whether Hong Kong should consider a revaluation of its currency, possibly by repegging it to the yuan or linking it to a basket of other major currencies.

 

“There’s no pressure for them to do anything right now but the pressure will build and my expectation is the pressure will build up a lot quicker than people think,” said Peter Redward, head of Emerging Asia research at Barclays Capital.

 

It’s inevitable that Hong Kong will have to align its policy with that of China’s as the use of yuan in Hong Kong and the rest of Asia grows and risks making the Hong Kong dollar redundant.

 

Mr. Redward thinks yuan deposits in Hong Kong banks could swiftly rise towards 20% of total deposits within years, adding to strains on the US dollar peg.

. . .

Speculation on the peg’s fate reached a fever pitch this month, with one-year dollar forwards plunging to a five-month low of minus 300 points in mid-November as some investors bet its exchange rate against the US dollar could be moved to a stronger level, reflecting the upward pressure of capital inflows.

 

In the spot market, the Hong Kong dollar fell to the lower end of the central bank’s band of 7.85-7.75 to the US dollar for the first time in nearly a year.

. . .

Inflationary pressures

 

If the US dollar weakens further, in trade-weighted terms the Hong Kong dollar will weaken too, adding to inflationary pressures.

 

One-month HIBOR rates -- off which mortgage and other loan rates in the territory are priced -- have plunged to practically zero from 5% at the peak of the financial crisis thanks to ultra-easy US monetary policy in the wake of the global financial crisis.

 

Meanwhile, inflation has sped higher, meaning real interest rates are falling further into negative territory.

 

The most widely watched inflation rate accelerated to 2.6% on a year-on-year basis in October and UBS predicts it will reach 5% in the near term.

 

Calls have grown for a fundamental rethink, given the extraordinary monetary conditions posed by US easy money and China’s strong credit growth spilling over into the city.

 

Yuan deposits jumped 14.5% in September to 149.3 billion yuan amid sizzling growth in the city’s offshore yuan market.

 

“The best solution for Hong Kong would be to move away from a pegged regime altogether and acquire discretionary control over its monetary policy,” Mr. Baig said.

. . .

Even though the yuan deposit base has swelled rapidly in recent months, the pool of renminbi in Hong Kong is quite tiny -- estimated at about 2.5% of total bank deposits -- and any such peg shift to the Chinese currency would take years.

-- Reuters

 

/more: http://www.bworldonline.com/main/content.php?id=22347

Link to comment
Share on other sites

OPEN LETTER TO TOM HOLLAND, at The South China Morning Post

The HK Dollar peg - the 50% solution / tom.holland@scmp.com

Tom Holland responded with a brief message:

QUOTE

thanks for your message – yes I still think gold fails to stand up as an investment, although its been a great speculative long for the last ten years.

John usually dismisses baskets – even two currency baskets – as too complicated.

The HKD swap idea is interesting – I’ll look into it.

Happy Christmas,

Tom

Tom HOLLAND

Senior Writer

South China Morning Post

UNQUOTE

Link to comment
Share on other sites

(Tom picked up both of my ideas for a new peg, and put it in his column yesterday):

 

Some more crazy ideas for replacing the HK dollar peg

 

MONITOR .. Tom Holland .. Dec 30, 2010

 

Last week this column endeavoured to explain why it would be a bad idea for Hong Kong to peg its currency to the yuan at any time in the foreseeable future....

Link to comment
Share on other sites

(I find myself disagreeing with this colleague of Noriel Roubini):

 

Getting the Diagnosis Right: Avoiding a Housing Price Bubble in Hong Kong SAR

 

Nigel Chalk Dec 21, 2010 5:23PM

 

In the past couple of years, Hong Kong has witnessed a sharp increase in property prices. This has led some to claim that the time has come to change Hong Kong’s “Linked Exchange Rate System”.

 

This represents a misdiagnosis of the current situation and the wrong prescription for Hong Kong.

 

It is true that the average cost of an apartment in Hong Kong has risen by almost 20 percent in the past year alone. This stands in stark contrast to what our latest World Economic Outlook described as the dismal outlook for real estate markets in the industrial countries.

 

And, like many countries in the region, Hong Kong has been the destination for an extraordinary amount of global capital over the past two years.

 

But how much of these trends have been a product of the exchange rate regime?

 

A few facts are worth considering.

 

First, no other fixed exchange rate arrangement has seen anywhere near the scale of inflows that Hong Kong has experienced. Second, rising property prices are not unique to Hong Kong. House prices have been going up in a range of Asian economies, all of them with very different exchange rate regimes.

 

While the currency regime has been part of the story, I believe that the motivation for the large inflows lies also in the strength and resilience of the local economy—Hong Kong is both a vibrant market for new equity issuance and a safe haven for international capital. The inflows, in many ways, are a symptom of Hong Kong’s economic success.

 

In the property market, low interest rates, imported courtesy of the link between the Hong Kong and U.S. currencies, have no doubt played a role. Mortgages are cheaper which has encouraged many to borrow to invest in real estate. Indeed, mortgage lending has expanded by almost 15 percent over the past year. But other factors are also at work. There is a strong demand for property from both Mainland Chinese investors and from high net worth professionals that are moving to work in Hong Kong’s rapidly expanding financial services industry. At the same time, current supply conditions are unusually tight and, while construction is underway, it will take time before those new units actually hit the market.

 

So what to do? Our view is quite straightforward. Higher housing costs will not be solved by changing the Linked Exchange Rate System. Hong Kong’s exchange rate regime has, time and again and for more than 27 years, shown itself to be a robust anchor of monetary and financial stability. Instead, property price inflation should be tackled through measures that are carefully targeted at the property market itself.

 

First, apply stricter lending standards that help guarantee the integrity of the financial system in the event of a downturn. Regulatory tools should be deployed to ensure that banks carefully manage their credit risks and home buyers do not over-extend themselves in the housing market. This means higher downpayments for home purchases and more conservative limits on the share of a borrower’s income that can be used to service their mortgage.

 

Second, increase transactions costs to dissuade short-term players who are in the business of buying and selling housing in the hopes of making a quick profit. Higher stamp duties, penalties for canceling primary market transactions, and an increase in property taxes will all dampen such short-term speculation.

 

Third, increase the amount of land available for residential development. Efforts are well underway on this front and the new government steering committee on housing land supply has committed to making available enough land to build 20,000 new private residential units annually over the next decade.

 

‪In all of this, it is essential to stay well ahead of the curve. We have seen all too many times the economic and social damage that can be wreaked by a property price bubble that is allowed to inflate and then burst. A rising risk of a housing bubble in Hong Kong should not be ignored.

 

Instead, it should be met with a countervailing policy response that is proportional to the risks. The government’s recent announcements—to further lower loan-to-value ratios and raise stamp duties—represent a proactive and well calibrated response to the current risks. Going forward, it will be essential to remain vigilant and introduce further measures, should circumstances so warrant. Failure to do so would raise the risk that today’s property market exuberance results in a future downturn that could prove both protracted and painful.

 

/source: http://www.roubini.com/emergingmarkets-mon...n_hong_kong_sar

 

== ==

 

HK property is already in a "bubble" in the sense that prices will fall if rates rise,

and a rate rise may not even be necessary.

Link to comment
Share on other sites

BTW, I have picked up an interesting rumor from the internet.

 

Some folks are saying that China is considering swapping its US dollar holdings for HK dollars. The rumor is vague, but from what I have heard it might work something like this:

 

+ China would hand back to the US a major postion of its US dollar T-bond holdings (lets say $600 billion worth),

+ In return, the US would give them a large amount of gold, and new HK$ debts issued by the US treasury

+ China would use the Gold to back the HK$ currency, which would be allowed to float, while the Rmb remains non-convertible

+ The HK$ would then be expanded, as China would begin to denominate transactions (oil shipments?) in HK$, rather than US$

+ The world would accept the HK$ as a major new currency thanks to China's backing

 

Have a thought about this scenario. Maybe you will see some genuine merits in it.

One of the original sources for this idea may have been Ben Fulford...

 

China is proposing to replace the US dollar with the Hong Kong dollar

 

At a top secret high-finance meeting scheduled for this weekend, China will propose that the US dollar be replaced by the Hong Kong dollar, according to a senior MI6 source. The proposal is under serious consideration by the backers of the new financial system.

As we have previously reported most US dollars ever created are now backed by gold at the rate of 1/28th of a gram per dollar. The fraudulent Federal Reserve Board fiat dollars issued after September, 2008 are not. Nor are any dollars derived from fraudulent "derivatives." So, to replace the US dollar with the Hong Kong dollar all that would be required would be to rename the gold-backed dollars. Any new Hong Kong dollars issued would be backed by the Renminbi, according to the Chinese proposal.

It might also be a good idea to rename the Hong Kong dollar the Hong Kong Yen (pronounced Yuan in Chinese). This is not for chauvinistic Asian reasons but simply because the dollar symbol $, is derived from a Satanic image of two snakes fighting while the word Yen means “fountain of life.”

 

/source: http://www.fourwinds10.com/siterun_data/bu...hp?q=1257704852

Link to comment
Share on other sites

adrian day on the hk$

 

TGR: Are you using currencies as a way to hedge against USD devaluation along with gold?

 

AD: Yeah, a little bit; I prefer gold for a lot of reasons, and let’s not forget that every currency we look at is simply paper; there is no currency backed by gold. But clearly some are stronger than others, and it strikes me that the Asian currencies, outside of Japan, are the strongest of all. The governments have better balance sheets, the banking systems tend to be stronger. The Asian currencies tend to be less leveraged, and so we like some of the Asian currencies a lot. Two that we hold right now are the Singapore dollar, which is extremely liquid and can be purchased in small amounts; the other is a little bit unusual-the Hong Kong dollar.

 

Some people might say: “Why buy the Hong Kong dollar? It is tied to the USD.”

That’s actually true, and that’s partly the rationale to buy it. If you’re a USD investor, the downside risk in buying the Hong Kong dollar is extremely low. The thought that Hong Kong would break the link and that the Hong Kong dollar would decline against the U.S. dollar is such a low risk that you can almost call it ‘zero.’ However, at some point given the stronger balance sheet in Hong Kong, one can easily see that it’s going to rebound against the dollar. I should point out that neither of these are investments; they’re merely ways of holding savings.

 

TGR: What about the yuan?

 

AD: We own the yuan and we own it through the WisdomTree Dreyfus Chinese Yuan Fund (NYSE:CYB); but in a way, the Hong Kong dollar is a bet on the yuan because, if the Chinese currency appreciates in any significant way, it’s only a matter of time before the Hong Kong dollar will have to be revalued. Today, the Chinese currency is so much more important for Hong Kong than the USD. In the meantime, you get downside protection against the USD.

 

/more: http://commentaryandanalysis.mining.com/20...es-and-juniors/

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...