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The Hong Kong Currency Board During the 1997–8 Crisis: Problems and Solutions

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  • Nai‐fu Chen

Abstract

The note‐based Hong Kong currency board was ineffective in dealing with currency speculations at the start of the Asian financial crisis in 1997. The makeshift modification implemented by the Hong Kong Monetary Authority imposed implicit controls on the capital outflow and produced high and volatile interest rates. There are simple solutions. We examine the merits and evidence related to the issuance of currency put options by the monetary authority as a commitment against devaluation. Furthermore, a simple mechanism linking the domestic credit demand to the reserve currency base will induce proper interest‐rate dynamics for a currency board to function properly.

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  • Nai‐fu Chen, 2001. "The Hong Kong Currency Board During the 1997–8 Crisis: Problems and Solutions," International Review of Finance, International Review of Finance Ltd., vol. 2(1‐2), pages 99-112.
    • Handle: RePEc:bla:irvfin:v:2:y:2001:i:1-2:p:99-112
    DOI: 10.1111/1468-2443.00017_2_1-2
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    Cited by:

    1. Tse, Y. K. & Yip, Paul S. L., 2003. "The impacts of Hong Kong's Currency Board reforms on the interbank market," Journal of Banking & Finance, Elsevier, vol. 27(12), pages 2273-2296, December.
    2. Nai‐Fu Chen, 2009. "Banking Reforms for the 21st Century: A Perfectly Stable Banking System Based on Financial Innovations," International Review of Finance, International Review of Finance Ltd., vol. 9(3), pages 177-209, September.
    3. Quah Chee-Heong, 2019. "China’s Dollar-linked Hong Kong during the Global Crisis," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 38(67), pages 95-121, February.

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