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Banking and Exchange Rate Relations between Hong Kong and Mainland China in Historical Perspective: 1965–75

In: Hong Kong SAR’s Monetary and Exchange Rate Challenges

Author

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  • Catherine R. Schenk

Abstract

The ‘one country, two systems’ structure established to govern the relationship between Hong Kong SAR and Mainland China was an innovative and comprehensive solution to particular economic and political challenges posed by the return of Hong Kong to the PRC in 1997. At the time of the drafting of the Basic Law, the integration of the colony into the regional economy of Southeast China through outward FDI had already begun, and from the mid-1980s this process facilitated the transformation of the Hong Kong economy from a manufacturing base to one dominated by financial and commercial services. It was recognized on both sides of the negotiations that the territory’s viability and future prosperity relied on retaining independence over a range of key fundamentals, including a separate and independent currency and monetary system that was at the foundation of Hong Kong’s attraction as an international financial centre for the PRC and also for the rest of the Asian region. An important credibility mechanism for the HK$ (as for the inconvertible RMB at this time) was the exchange rate link to the US$. Since this was also the anchor for the RMB after 1997, the linked rate system kept the relationship between the RMB and the HK$ stable.

Suggested Citation

  • Catherine R. Schenk, 2009. "Banking and Exchange Rate Relations between Hong Kong and Mainland China in Historical Perspective: 1965–75," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Catherine R. Schenk (ed.), Hong Kong SAR’s Monetary and Exchange Rate Challenges, chapter 3, pages 45-72, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-59474-6_3
    DOI: 10.1057/9780230594746_3
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