HKD peg.
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HKD peg.
This weekend's article from [email protected]
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History says paper currencies always die.
In today's Money Weekend we'll suggest a possible candidate for destruction and why you should keep an eye on it.
If you think we're talking about the Iranian rial, we're not. Although the Hanke-Krus Hyperinflation Index recently added the Iranian rial to its hyperinflation list.
Iran is obviously a story at the centre of mainstream news lately.
But we're actually thinking about something closer to home - the Hong Kong dollar (HKD).
Here's why...
The Most Expensive Houses in the World
If you think buying a house in Australia is expensive (we do), check out Hong Kong. 'The Hong Kong government's toughest efforts yet to curb a growing asset bubble in the city's property market probably won't be the last as record-low mortgage rates drive demand for the world's priciest homes,' reported Bloomberg last week.
The article quotes a study done last September that puts Hong Kong home prices 65% above Tokyo, the second most expensive place to buy a home in the world.
Hong Kong recently slapped a 15% tax on foreign buyers to try and cool its real estate market. But what Hong Kong really needs to do to snap off its rampant property bubble is to raise interest rates to increase the cost of borrowing.
That's too bad, because Hong Kong's monetary policy is determined by the US Federal Reserve.
The Hong Kong dollar is pegged to the US dollar, and has been since 1983. Maintaining the peg amongst the Fed's policy of 'quantitative easing' has unleashed inflation in Hong Kong. If the US Fed drops interest rates and prints money, Hong Kong has to follow suit.
There's no relief in sight either.
You might remember we mentioned what US Federal Reserve Chairman Ben Bernanke said in Tokyo last month. He was responding to accusations that he was hurting foreign countries. If you don't remember, here it is again:
'Of course, an alternative strategy - one consistent with classical principles of international adjustment - is to refrain from intervening in foreign exchange markets, thereby allowing the currency to rise and helping insulate the financial system from external pressures.'
Bernanke wants to cheapen the US dollar relative to other currencies to boost American exports. Bernanke has already said he will keep interest rates at a record low until at least 2014. This helps the American government finance its 16 trillion dollars deficit.
We doubt Bernanke had Hong Kong specifically in mind when he spoke in Tokyo. But a side effect of Bernanke's money printing is it destabilises other economies like Hong Kong. So how long can the peg between the Hong Kong and US dollar hold?
Probably not long. That means the Hong Kong dollar would start to rise against the US dollar.
Perhaps the Hong Kong Monetary Authority would peg the HKD to something else to stop it appreciating too far. But what? There isn't much choice.
Switching Teams
It doesn't take much imagination to work out that Bernanke's tactics will drive Hong Kong into further integration with mainland China. After all, Hong Kong is a 'special administrative region' of the Chinese mainland, and half of Hong Kong's trade is with China.
The CIA world Factbook says, 'Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. In 2011 mainland Chinese companies constituted about 43% of the firms listed on the Hong Kong Stock Exchange and accounted for about 56% of the Exchange's market capitalization.'
With figures like that, the peg to the US dollar is starting to look pretty outdated.
If the peg breaks, a free-floating HKD would appreciate on the back of Hong Kong's strong economy.
But it's not crazy to think at some point the Hong Kong dollar might be abolished completely and replaced with the Chinese remnimbi (RMB). It's an idea that's been around for a while, but hasn't really worked out yet because China has not internationalised the RMB.
But the argument for the Hong Kong dollar as an attractive foreign currency play stands over the long term. If some sort of peg with the RMB is established, the tailwind of a rising remnimbi (when it eventually floats) could take it much higher. If the HKD is abolished completely, it's a backdoor way to bet on the remnimbi rising.
In today's Money Weekend we'll suggest a possible candidate for destruction and why you should keep an eye on it.
If you think we're talking about the Iranian rial, we're not. Although the Hanke-Krus Hyperinflation Index recently added the Iranian rial to its hyperinflation list.
Iran is obviously a story at the centre of mainstream news lately.
But we're actually thinking about something closer to home - the Hong Kong dollar (HKD).
Here's why...
The Most Expensive Houses in the World
If you think buying a house in Australia is expensive (we do), check out Hong Kong. 'The Hong Kong government's toughest efforts yet to curb a growing asset bubble in the city's property market probably won't be the last as record-low mortgage rates drive demand for the world's priciest homes,' reported Bloomberg last week.
The article quotes a study done last September that puts Hong Kong home prices 65% above Tokyo, the second most expensive place to buy a home in the world.
Hong Kong recently slapped a 15% tax on foreign buyers to try and cool its real estate market. But what Hong Kong really needs to do to snap off its rampant property bubble is to raise interest rates to increase the cost of borrowing.
That's too bad, because Hong Kong's monetary policy is determined by the US Federal Reserve.
The Hong Kong dollar is pegged to the US dollar, and has been since 1983. Maintaining the peg amongst the Fed's policy of 'quantitative easing' has unleashed inflation in Hong Kong. If the US Fed drops interest rates and prints money, Hong Kong has to follow suit.
There's no relief in sight either.
You might remember we mentioned what US Federal Reserve Chairman Ben Bernanke said in Tokyo last month. He was responding to accusations that he was hurting foreign countries. If you don't remember, here it is again:
'Of course, an alternative strategy - one consistent with classical principles of international adjustment - is to refrain from intervening in foreign exchange markets, thereby allowing the currency to rise and helping insulate the financial system from external pressures.'
Bernanke wants to cheapen the US dollar relative to other currencies to boost American exports. Bernanke has already said he will keep interest rates at a record low until at least 2014. This helps the American government finance its 16 trillion dollars deficit.
We doubt Bernanke had Hong Kong specifically in mind when he spoke in Tokyo. But a side effect of Bernanke's money printing is it destabilises other economies like Hong Kong. So how long can the peg between the Hong Kong and US dollar hold?
Probably not long. That means the Hong Kong dollar would start to rise against the US dollar.
Perhaps the Hong Kong Monetary Authority would peg the HKD to something else to stop it appreciating too far. But what? There isn't much choice.
Switching Teams
It doesn't take much imagination to work out that Bernanke's tactics will drive Hong Kong into further integration with mainland China. After all, Hong Kong is a 'special administrative region' of the Chinese mainland, and half of Hong Kong's trade is with China.
The CIA world Factbook says, 'Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. In 2011 mainland Chinese companies constituted about 43% of the firms listed on the Hong Kong Stock Exchange and accounted for about 56% of the Exchange's market capitalization.'
With figures like that, the peg to the US dollar is starting to look pretty outdated.
If the peg breaks, a free-floating HKD would appreciate on the back of Hong Kong's strong economy.
But it's not crazy to think at some point the Hong Kong dollar might be abolished completely and replaced with the Chinese remnimbi (RMB). It's an idea that's been around for a while, but hasn't really worked out yet because China has not internationalised the RMB.
But the argument for the Hong Kong dollar as an attractive foreign currency play stands over the long term. If some sort of peg with the RMB is established, the tailwind of a rising remnimbi (when it eventually floats) could take it much higher. If the HKD is abolished completely, it's a backdoor way to bet on the remnimbi rising.
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Hedge Fund Investor Ackman Making Big Bet on HK Dollar - CNBC
Bill Ackman is a hedge fund guy in NY that has been planning on this for over a year now. I remembered reading about this last year.
For US based guys, if you can afford to save some of your paycheck in HKD's, it is a low risk way of potentially benefitting if the rate does indeed change.
Bill Ackman is a hedge fund guy in NY that has been planning on this for over a year now. I remembered reading about this last year.
For US based guys, if you can afford to save some of your paycheck in HKD's, it is a low risk way of potentially benefitting if the rate does indeed change.
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Less HKD to 1USD?
Could be a lot higher, mind you.
Instant pay rise (at least for those repatriating some portion of your pay) for HKG based people?
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to remain pegged or to remove the peg are not the only chpices available
more likley if inflation starts to really take-off, the peg will be adjusted to say, HKD 6 - USD 1
either way, best to keep your money in HKD
more likley if inflation starts to really take-off, the peg will be adjusted to say, HKD 6 - USD 1
either way, best to keep your money in HKD
