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On the Maintenance Costs and Exit Costs of the Peg in Hong Kong

Author

Listed:
  • Paul S. L. Yip

    (Economics Department, School of Humanities and Social Sciences, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore)

Abstract

This paper attempts to pioneer a discussion on the exit and maintenance costs of the Currency Board System (CBS) in Hong Kong, and hopes to invite more debate on the issue. It suggests that the exit costs will depend on the timing of an exit, whether there are supplementary packages to mitigate the exit costs, and the choice of an alternative exchange rate system. In particular, it suggests that the monitoring band system favored by Williamson (2000) could help to reduce the exit costs. In addition, the paper points out that there are ways to reduce both the exit and maintenance costs. It then proposes a reform that could benefit the economy regardless of whether the policy maker eventually chooses to continue with or abandon the peg. The study is not only crucial to Hong Kong, but also important to other economies with a CBS as well as to the debate on the choice of exchange rate system.

Suggested Citation

  • Paul S. L. Yip, 2005. "On the Maintenance Costs and Exit Costs of the Peg in Hong Kong," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 377-403.
    • Handle: RePEc:wsi:rpbfmp:v:08:y:2005:i:03:n:s021909150500049x
    DOI: 10.1142/S021909150500049X
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    References listed on IDEAS

    as
    1. Corrado, L. & Marcus Miller & Lei Zhang, 2002. "Exchange Rate Monitoring Bands: Theory and Policy," Cambridge Working Papers in Economics 0209, Faculty of Economics, University of Cambridge.
    2. Yum K. Kwan & Francis Lui, 1999. "Hong Kong's Currency Board and Changing Monetary Regimes," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues, pages 403-436, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Currency board; monitoring band; exchange rate policy; Hong Kong; Singapore; JEL Classifications: F41; JEL Classifications: E58;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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